Guide to Trading

1. Set a Stop Loss: Before entering any trade, decide beforehand the amount you are willing to lose and stick to it. Set a stop loss on the trade before you enter. Do not fluctuate your stop loss if you are in a losing trade. During times of extreme volatility it can be difficult or impossible to execute orders. Stop orders become market orders when executed, so the order may not be filled at the desired price. As a result, the initial risk can be estimated, but not guaranteed.

2. Let your profits run: Do not be emotional about a trade – you will lose some and win some. Know the reason why you entered a trade and stick to those reasons. The less emotional you are the more successful you will be. Stick to your game plan – move your stop loss as the market moves in your favor and let your profits run. During times of extreme volatility it can be difficult or impossible to execute orders.

3. Don't be influenced: You have your own game plan stick to it. If you are influenced by others you will constantly be changing your mind. Learn to insulate external sources once you have made up your mind. You will always find someone who will give you a logical reason to do the opposite.

4. Keep your position sizes within your limitations: Successful traders know that in order to profit you trade for the long term. Trading is a game of probabilities, and over the long run as long as you stick and implement sound strategies and stay consistent – success is much more likely to come. To be a successful trader you should never take a position that puts substantial capital in jeopardy. In actuality you will rarely find successful traders who risk more than 10% of their account in any trade. You might want to start small and increase your trade sizes as your confidence grows.

5. Know your risk vs. reward ratio: The minimum ratio you should be using is 2:1, so if you are successful on 50% of your trades you are doing well. For instance, if you are long GBP/USD and you want to earn 30 pips you should not risk more than 15 pips. You should never risk 30 pips in order to make 10 pips. If you do, you’ll make a lot more successful deals then unsuccessful ones, but the poor ones will ruin any of your chances for profit. Your risk vs. reward analysis is extremely important to trading successfully.

6. Have adequate capital: You should never trade with money that you cannot afford to lose. Always make sure that you have enough credit. For example, you should can ask yourself the following question: “if I were to lose 50% of my opening balance in 6 months will I still be able to afford to trade?” Only if the answer is yes should you start trading, click to open trading account. One of the keys to successful trading is mental independence, which means your trading freedom must not be influenced by your fear of losing.

7. Trending or Neutral: Learn to analyze the forex market – is it a trending market or a neutral market? In a trending market, follow the trend. In a neutral market, buy on lows and sell on highs. As long as you use stop-losses you are controlling your risk.

8. Don’t fight the trend: Don’t try to buy on dips and sell on highs in a trending market. The old saying "the trend is your friend" is a good one. Why fight it – go with it!

9. Averaging – don’t do it: One of the most common mistakes traders make is the continuing adding of a losing position. Averaging will be the death of short-term trades. For short-term trades, preserving capital is the most important thing, and putting too much capital at risk will jeopardize success. In short-term trading, if a strategy is right the market should move in the correct direction within a relatively short period of time. However if it's wrong, the short-term traders should realize that they traded incorrectly, and they should take the loss and move on. There is not much room for pride in short-term trading. You should never add to a losing position.

10. Chasing a bad idea: This happens all the time. You see a potential trade and then decide to wait till the next day to see if it sets up. By the time you see that it did exactly what you thought, it may be too late. Review your reasoning for the trade, make sure your initial reason is still there and if not, forget about the trade. There will always be trading opportunities, so be patient and strike.

11. Understand the way the market thinks: You should understand that all the information (except for newly released information which the market adjusts to within a short moment) is already built into the price of the cross. You should know what indicators are coming, particularly the majors, and you should know what is already anticipated by the market. There are many publications of market anticipation for major indicators.

12. Trading - a game of probabilities: You will not be correct 100% of the time – it’s a fact. Good, experienced traders all know this. It’s a numbers game, and you’ll make some and lose some. The idea is simply to win more than you lose, not to catch all the fish in the pond. Understand that trading is a game of probabilities, and if you do the right thing, in the long run you will come out ahead. Learn from mistakes. When you start forex trading, you may well lose more than you make. Think about what you did wrong and try not to be emotional about the trades. If you stick to your game plan and learn, hopefully your profits will out weight your losses.

13. Know why you are in the trade: Keep a trading log, and write down why you entered a trade. Don’t be impulsive. Have a plan. This way you will learn which strategies work for you in the long run and which don’t. If trading before or after releases works for you, look for them and trade those.

14. If the logic goes you go: If the reason you entered the trade disappears then so does your reason to remain in the trade. If you think you’re at a low and it breaks through, get out. Then reevaluate and decide once more.

15. Have a maximum run: If you have 4 or 5 bad trades in a row, take a break. Something isn’t working. Go away and regroup. Don’t be afraid to take a break.

16. Study: Learn new ideas, keep up to date, and don’t trade other people’s ideas. You should always know why you are in the trade.

17. Have Fun: Enjoy what you do. Keep calm and stay as unemotional as possible – you will be more successful.

Source: www.avafx.com

Simple Forex Trading Strategies

Simple Forex Strategies:

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Making trading decisions and developing a sound and effective trading strategy is an important foundation of trading.

Sample Strategy 1 - Simple Moving Average

Successful trading is often described as optimizing your risk with respect to your reward, or upside.  Any trading strategy should have a disciplined method of limiting risk while making the most out of favorable market moves.  We will illustrate one decision making model which uses a Simple Moving Average ("SMA") technical study, based on a 12-period SMA, where each period is 15 minutes.  This type of study is available in the CFX trading charts. This is one example of a trading decision making strategy, and we encourage any trader to research other strategies as thoroughly as possible.

We will use a simple algorithm: when the price of the currency crosses above the 12-period SMA, it will be taken as a signal to buy at the market.  When the currency price crosses below the 12-period SMA, it will be a signal to "Stop and Reverse" ("SAR").  In other words, a long position will be liquidated and a short position will be established, both with market orders.  Thus this system will keep the traders "always in" the market - he will always have either a long or short position after the first signal.  In the chart below, the white line represents the price of USDJPY, the purple line represents the 12-period SMA of USDJPY, and the red line indicates where USDJPY crosses above the SMA, generating a buy signal at approximately 129.90:

This is a simple example of technical analysis applied to trading.  Many strategies used by professional traders make use of moving averages along with other indicators or "filters".  Note that the moving average method has an element of risk control built in: a long position will be stopped out fairly quickly in a falling market because the price will drop below the SMA, generating a stop-and-reverse signal.  The same holds true for a sell signal in a rising market.  Note that the SMA is generated automatically by CFX's integrated charting application.

Sample Strategy 2 - Support and Resistance Levels

Another of technical analysis, apart from technical studies, is in deriving "support" and "resistance" levels.  The concept here is that the market will tend to trade above its support levels and trade below its resistance levels.  If a support or resistance level is broken, the market is then expected to follow through in that direction.  These levels are determined by analyzing the chart and assessing where the market has encountered unbroken support or resistance in the past.

For example, in chart below EURUSD has established a resistance level at approximately .9015.  In other words, EURUSD has risen up to .9015 repeatedly, but has been unable to move beyond that point:

The trading strategy would then be to sell EURUSD the next time it gets close to .9015, with a stop placed just above .9015, say at .9025.  This would have indeed been a good trade as EURUSD proceeded to fall sharply, without breaking the .9015 resistance.  Hence a substantial upside can be achieved while only risking 10 or 15 pips (.0010 or .0015 in EURUSD).

Source: www.charterfx.com

Multiple Time Frame Analysis

Multiple Time Frame Analysis

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Multiple time frame analysis is a form of technical analysis which requires the traders to look at the different price changes of the same currency pair. Typically the charts are in different time frames and will allow the trader to better understand how the currency options moves with changing market conditions. Through multiple time frame analysis, traders can effectively enter positions.

In most cases, only 3 time frames are used , weekly, daily and 4-hour charts but traders may also decide to utilize shorter time frames (4-hour, 1-hour and 15 minutes). Generally, the longer time framed charts are used to get an overview of how the market is behaving while the shorter time frames are utilized to fine tune the entry and exit points. It is important for the traders to capture the big movements in the market in order to make a huge sum of profit. In this case, the traders will need to know which direction they should take and what kinds of shorter term movement can they take advantage of. Multiple time frame analysis is more than just picking out the tops and bottoms; instead, it is about looking for buying opportunities in an uptrend and selling opportunities in a downtrend which enables the trader to profit more.

Traders in the spot market typically use daily charts to identify the general trend while hourly charts determine the exact entry points. In the AUD/USD currency pair which has been trending up since the early 2002, range traders will find it difficult to trade, and will probably experience losses if they stick to the same strategies they use in normal situations. Even when certain dips in the market, the pair remained strong for the last couple of years, hence presenting very little opportunities even for medium term range traders.

In this case, it is best to adopt a position which follows the trends and to look for buying opportunities when the prices are lowest. In this case, the trader can use a level of the Fibonacci retracement as the main support level then use the daily charts to get a general idea of the direction of the trade and then hourly charts to pinpoint entry points.

The good thing about multiple time frame analysis is that it can be used even for hourly trading with leverage. For example, in a highly volatile currency pair such as the CHF/JPY, the trader can use hourly charts to gauge the direction of the trend and 15 minute charts in looking for entry points in the direction of the trend. To increase the success, it is important to use different indicators to ensure that the currency is trending in a particular direction.

Source: www.etoro.com

Profit Yielding Strategies: Applying the 80/20 Rule

Profit Yielding Strategies: Applying the 80/20 Rule

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The implication of the 80/20 rule in the realm of forex trading is that you should focus more on high quality trades that pay off handsomely rather than trading more frequently. This is actually one of the most common errors that most novice traders make when they are starting out to trade online... Too much trading. They will go for day trading, hedging and scalping for low odds trades which result in more losses than gains.  

This mentality is due to the way we were educated and brought up to think in the sense that the harder you work, the more you will stand to gain. Unfortunately, the illusion of hard work doesn’t pay off when we are dealing with forex trading. The market is always changing and our flawed ingrained philosophy cannot cope with the dynamics of the financial markets. We need to adopt a paradigm shift in the way we think if we ever hope to profit from trading forex. This is the main reason why we get the forex veterans making most of the money in online forex trading. Research and surveys have proven such is the case.

Professional or experienced forex traders on the other hand tend to go for long term trades but pay off with high profitability. It is not uncommon to find these experienced traders making just a single trade once a week or even a month and still get a 100% return on their investment. The key toward profitability is to look for long term trades and learning how to use the forex charts properly to look for long term trends which could last for months.

Once you have identified such a long term trend pattern on your charts, stake your market position, hold on to the position and trail your stop loss to follow the long term trend. With the application of the 80/20 rule in your trading strategy, you will get to make more money, have less stress and also waste less time on unprofitable efforts.

Source: www.etoro.com

The Science of Scalping

The Science of Scalping

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The science of scalping is a trading strategy which is essentially very quick in and out trading where the scalper steadily increases the balance of his account. Scalping traders only keep an open position for a few seconds or up to a few minutes. There is a very fine line between scalping and day trading suffice to say that scalping is the risky side to day trading.

Scalping is highly risky because the scalper is only in the trade for a short time and because they want to make a lot of money they use a high leverage so that just a few pips maybe a 1 to 5 pip profit gives them a reasonable monetary profit. In addition scalpers have a number of trades open at the same time and during the day could easily accomplish more than 50 trades. This is why it’s risky. When trades go with you it's good but when the market goes against you with many high leveraged trades open you can take a heavy beating.

Not all forex brokers support trades that are open for a few minutes as they cannot move fast enough to turn a profit so you have to make sure your broker supports such practices otherwise they will first warn you and then close your account.

Of course scalping is not an exact science but there are some strategies which can give you winning trades. As with all strategies you must lay down the rules you are going to follow and stick with them. First of all scalping cannot be done away from the computer. You can’t open a position then go and make a cup of tea. You may find that when you return you have lost a lot more than your thirst. When trades are open stay glued to your screen. Secondly, decide on the loss you are willing to put up with. Don’t forget that you don’t have much time to put in stops so you have to have your finger on the trigger at all times. Thirdly, decide how many pips profit you want before you close out the trade. If the profit rises above the number you have decided on don’t wait, close the trade because it can easily go 5 pips against you before you know it.

source: www.etoro.com

Top 10 Forex brokers- Whats your view?

Etoro: 

Etoro offers a single trading platform that offers two different modes: visual mode and expert mode. 

The trading platform eToro is a user-friendly trading platform with everything you can expect quick, visual mode designed for beginner traders to make learning easier and expert mode provides sufficient functionality for advanced traders. 

Deposit withdrawals and easy credit card, paypal, NetTeller, wertern union, bank transfer and more.

Minimum deposit is $ 50. 

AVAFX:

AVAFX is a forex broker regulated by Ireland, which is established as a trust broker, their platform AvaTrader is recognized as the best trading platform to trade manual.

MT4 is available utilsateur the pure EA.

AVAFX equipped to provide forex trading very advance.

You can create an account from a minimum deposit of $ 100.

FXCM:

This forex broker is regulated by CFTC and the NFA in the U.S., Japan FSA, FSA united kingdom, ASIC.

You can open an account from a minimum deposit of $ 50.

if you are a beginner, fxcm a special offer for beginners.

This forex account provider SEVERAL liquid which includes financial institutions, and the levels of other works to compete to provide fxcm spreads emissions.

ACFX:

This forex broker is based in cyprus in, he was named best forex broker in southeastern Europe by the world finance magazine. It offers three trading platforms MT4, LeWeb AND IPAD, VIP and ECN.

The minimum initial deposit for a count of ECN is $ 50,000.

Classic account and get a bonus of $ 230.

You can fund your account via bank transfer, credit card is, paypal, moneybookers and other payment systems.

TRADING POINT:

It offers 20% welcome bonus to all new account and loyalty bonus of 10% on each subsequent deposit.

This forex brokers as ACFX is also based in Cyprus and regulated by CySEC, it is allowed to be exploited in all countries of Europe.

HOT FOREX:

This broker Maurice regulated emissions with probation and the execution STP.

They provide services of good relations with the speed of execution, to accept low on MT4 EA, and provide an account by means of ECN curenex.

You can create an account with a minimum deposit of $ 5.

Deltastock:

The Forex is one of the best forex brokers in the world, it is regulated by FSA.

It provides a platform MT4, I recommend you use the platform Deltastock L2 forex trading.

Deltastock L2 is a true platform completely transparent forex ecm aggregation of liquid from several major forex brokers like fxcm, dbfx, Dukascopy, and interactive brokers.

If you want to make money without risk its better to create a demo account to learn before you jump in real mode.

Gomarkets:

This forex is based in Australia in 2006, is a broker gomarkets regulate ASIC.

You can use the MT4 platform for trading.

You can open an account from minimum deposit of $ 1.

FXDD:

FXDD Forex broker is one of the world's most popular, it was one of the first forex broker to offer their customers the MT4 platform, it is always growing and adding new platform forex trading to their offering talc the last platform FDD swordfish.

Their office trading application offers a highly customizable interface, with advanced graphics and a single click.

You can deposit funds using a credit card, bank transfer, paypal and more.

If you want your money or your account the same day I advice you to use a credit card.

FxPro:

This world leading forex broker, famous for its football, rally, formula one and sponsorships.

You can choose MT4, cTRADER and other mobile trading platforms.

They offer very low spread and instant execution.

It is easy to supply your account FxPro account through a bank transfer, credit card, paypal.

What should you know about Forex Signals ?

Trading with Leverage: How Much is Too Much?

Trading with Leverage: How Much is Too Much?

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Trading with leverage is a concept that can be seen in many markets. This takes a unique form when it comes to the Forex market. The main reason for this is the way the market has evolved and how it has been required by the retail trading that started to proliferate since the advent of the Internet. Typically, the average price movement of a currency pair is extremely small. The change in prices are indicated by the fourth decimal place in a currency quote known as a pip and when calculated a hundred pips will equal one cent.

Historically, the Forex market was dominated by banks, financial institutions and governments with millions in investment. Although these big time players still operate in the market it has now become the retail traders’ monopoly due to easy access to trading currencies. However, the standard trading lot in the Forex market is $100,000. Since this is not the kind of money that most retail traders have at their disposal they turn to leverage.

Leverage offered generally depends on the Forex broker and the amount of the margin deposit made by the trader. The concept of leverage is to trade with borrowed money and this could be anywhere from 100:1 and go on upwards of 400:1 at times. If you make a margin deposit of $250 and are given leverage to the tune of 400:1 you will be able to trade with up to 400 times of your deposit which in this case is equal to $100,000 or one standard lot.

With leverage, you stand to gain profits that are calculated with leverage and this enables you to make substantial profits from successful trades. One drawback of the system is when you lose a trade that losses are also calculated according to the leverage that was extended to the trader. This means that you can make huge losses in the same way that large profits were possible.

Now the question arises how much leverage is too much? This is a vital point to ponder as you trade currencies in the Forex market. The Forex broker strives to ensure that you do not lose more money than you have in your account and will warn you by giving you a ‘margin call’. Whenever this situation arises the broker will ask you to increase your deposit so as to accommodate further losses if it occurs or to close the account altogether with immediate effect.  

So, as you can appreciate leverage can be loss making just as much as it is profit making. This is where you can use stop loss orders to make sure that you do not go beyond certain limits so that you can stay within the parameters set out. Learn more by reading about the history of Gann theory to understand the origins of a very popular trading strategy.

Source: www.etoro.com

Why Investors Fail in Trading?

Why Investors Fail?

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According to research more than 92% of traders close their accounts within 9 months and never come back trading again. This essentially means one thing – trading is not a get rich quick scheme. Yet, this should not be misinterpreted to mean that it is not a profession for newbies. Even the best traders lose money in their first months in the investment industry, and they made it big because they strived to overcome the challenges and went on to learn from their mistakes. Why then do so many investors fail? Here are a number of reasons:

1.    They trade for a quick buck. While traders can easily make money in the forex market, it can easily disappear. Many traders earn quick money but very few make it big because they do not fully understand how the market works. On the other hand, there are many others who end up broke because they failed to realize that forex trading is all about an properly timed trading strategy.

2.    They don’t have a plan. In any financial market, a trading plan (or strategy) is essential. Before an investor decides to trade real money, they must set specific amounts on capital they want to invest, and how much they are prepared to lose. Unfortunately, so many new traders do not realize the importance of this or they simply couldn’t be bothered.

3.    They don’t use stop losses. Not all trades will go well, and in this case, a trader must know when they can call it quits. By setting up stop losses, traders can prevent additional risk to their account and can limit their losses to a few hundred dollars.

4.    They do not test for entry and exit points. Trading works a lot like firing a missile – you have to test it so you can minimize the casualty. Random buying and selling just wont work.

5.    They get emotional. Most traders who profit in an uptrend will tend to keep their bets on that same position hoping to get a few more dollars. Unfortunately, at a time when information can be transmitted so fast, prices can change in just a few minutes and will cause a $1,000 portfolio to drop in value without notice.

In the same way, traders who have losing positions may wish to keep trading hoping they can recover their losses, and end up losing even more. To prevent these from happening, a trader must stick to their plan – when they have reached a certain amount of profit, it is best to close the position and take home the profit. In the same way, traders will also need to stick to their stop losses.

Source: www.etoro.com

How to Take Your Profits from Forex Trades

How to Take Your Profits from Forex Trades

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Developing a trading strategy with an acceptable risk reward profile that the trader is able to adhere to is the key to taking full profits from trades.

Introduction:

The truth is that for all the education that you as a trader went through before starting to trade and for all the trading strategy tweaks you made, the one thing that you continue to find difficult is keeping your emotions in check. How many times have you taken your forex trading  profits on an emotional whim instead of getting out of the market by following your exit strategy or at a pre-determined goal? I would guess quite a few times. When you exit trades emotionally you are very likely taking less profit than you would otherwise have taken if you had exited the trade using your exit strategy and being disciplined about it.

How to Take Your Profits from Forex Trades:

The psychology behind an emotional exit is clear. Traders want to pinch every last pip they can from a trade. However in reality when emotion sets in and you wait too long, the prices reverse and you end up exiting the trade with less profit than you expected.   

Take the following example. Here we have a 30 minute EUR/USD price chart. The trader has bought Euro at 1.2915 and the trading strategy is a risk/reward ratio of 1:2, so the stop loss is placed at 1.2895, 20 pips below the entry point and the target profit rate is 1.2955.

When the target rate is reached instead of exiting the trade the trader decides to hang on a little longer. The price goes up another 15 pips before plunging back to 1.2937. The trader has now missed his strategic exit point at 1.2955 with a 40 pip profit and now has a 22 pip profit. At this point the trader has two choices, he can stay in and see if the price rises, which it in fact does or get out with only a 22 pip profit, which is in fact what the trader does. Now you might be saying to yourself ‘well the trader made a profit on the trade’, and indeed that was the case, but look at the emotional turmoil the trader went through to land up with the 22 pips. If the trader had kept to his strategy he would have had a 40 pip profit and a stress free trade.

Apart from the scenario described above there are other scenarios which you have probably found yourself ensnared by? There must have been times you exited a trade because the price moved against you slightly and then you watched in horror as the price raced on in your direction. Also there must have been times when you have exited a trade at your break even point because you feared that it was a losing trade and then to your surprise the price raced away in your direction while you watched in dismay.

You are not alone as many traders exit the market outside the parameters of their forex trading strategy simply because they ‘believe’ they know what will occur next. As a trader you should never try to fight the risks. The risk reward ratio you set when you develop your trading strategy should be an acceptable risk. It should be a risk you feel comfortable with.

Only then can you can you take profits from your trades and discipline yourself not to exit too early or too late whilst suffering from stress or anxiety.

Source: www.etoro.com

How to Read the Psychological State of the Market

How to Read the Psychological State of the Market

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Market psychology and collective market behaviour can be predicted by using technical indicators which show the level of volume in the market.

Introduction:

Unfortunately all human behaviour cannot be measured by reading graphs or tracking trends but human crowd behaviour can be measured and in some ways predicted by studying how crowd behaviour reacted to various economic and social events in the past. The market participants use various indicators to gauge the strength of the market. These volume indicators and oscillators together price charts and other technical indicators, if used properly offer strong indications of where crowd behaviour is going.

How to Read the Psychological State of the Market:

The most popular oscillators for market participants tend to be the MACD, RSI, and Stochastics. These indicators measure the psychological state of the markets by measuring and displaying the constant interaction between the strength of the buyers and sellers in the market and where the consensus of the market lies. These indicators use mathematical formulas to create buy and sell signals which correspond to the overbought or oversold measurements they have produced.

Measuring volume of either the number of shares which are traded at any given moment or the number of ticks traded at any given moment is an exceptional way to measure the markets psychology.  In essence volume is an indication of the emotional state of mind of the forex trader. Whereas low volume indicates indifference on the part of the market, high volume demonstrates a high emotional state whether the market has many winners or has many losers. 

  

Trends are a good indication of the psychological state of the market. A long term trend signifies a low emotional state amongst the market players. Small short term trend changes have moderate emotional significance because even small changes that repeat themselves and form a new trend do not change the psychological sentiment even if many traders suffer losses because of these changes. However, a series of small losses can soon lull an unsuspecting trader into not realizing that over time these small losses have aggregated into a big loss. Small changes and long term trends are driven by small volumes, however if there is a significant sharp change in market direction the emotional state of the participants will drive the volume up and extenuate the burst of strength of the particular change. 

Volume can also act as a predictor of changing market psychology.  If during a mature trend in a bull market there is a significant reduction in volume this could indicate that the bulls are running out of steam and preparing to take their profits because they feel that the market is overbought. Seeing this could push the bears into action and suddenly the psychology of the market turns against the bulls, volumes pick up as the bears become aggressive and then volumes dramatically increase as the bulls take their profits. The bull trend then becomes a bear trend.

This is also true on the other side of the coin. A bear trend can suddenly see declining volumes as the bears start to think about taking profits and believe that the market is oversold. Sensing this, the bulls enter the market and volumes are driven up. The bears take their profits and the bulls have the momentum. This type of collective psychology is very common in all the asset markets. The key is to use the available indicators so that you are sailing with the prevailing collective wind.

Source: www.etoro.com

The Best Kept Secret of Trading; The 10:00 am Rule

The Best Kept Secret of Trading; The 10:00 am Rule

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Forex trading is not only about using appropriate strategies, but also about proper timing. Yes, it’s true that the Forex market is open 24 hours a day but it isn’t always active. This means that while you can make money when the market is going up or down, you’ll find it difficult to make a profit if the market isn’t moving at all. Hence, it is important that you learn about the different market hours as well as the best times of the day and the best days of the week to trade.

The Forex market has 3 major trading sessions: the Tokyo Session, the London Session and the US Session. Between each session is a period when two sessions are open at the same time. For example, both the Tokyo and London sessions are open between 3 AM -4 AM EST while the London and US markets are open from 8AM -12 PM EST. These, then are the busiest time for trading since traders who wish to purchase currency from another continent can do so.

Of all the trading markets, London usually shows the most movement because it involves a number of countries such as UK, EU member countries and many others. The US market comes next. Hence, it is during the intersection between these two markets which usually provides the greatest return for trading.

Many Forex expert traders believe that the best time to trade is actually at 10 AM since this is the period when the London market is getting ready to close and more buyers and sellers have started moving to participate in the US market. During this time, currencies experience volatility as buyers and sellers bid for prices and turn out last minute wagers before the London market closes. The drastic change in market prices during this period allows traders to create profit from these movements.

The best day of the week to trade

There are also days in the week when markets show the most movement. According to researches by expert traders, the most movement in the 4 major pairs (EUR/USD, GBP/USD, USD/CHF, USD/JPY) is experienced in the middle of the week, from Tuesday to Wednesday. Fridays are also busy but it is best to trade until 12 PM EST only since currency movement tends to be chaotic after that.

For many traders, the best way to earn huge profits is to ride the market movement. By this statement alone, we can already see that many traders live on volatility – the more the market moves, the greater opportunity there is to make money.

source: www.etoro.com

Trading Times - When to Exit a Trade

Trading Times - When to Exit a Trade

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There is no perfect exit strategy. Whatever you do you will never exit a trade exactly at the point of the high on a buy or a low on a sell. However, you can use exit strategies that are quantified and permit you to exit into strength when you are holding a long position or on short positions cover into weakness.

In fact the essence of a trade exit rule or plan is to cut your losses and let your profits run. To cut your losses short use a well thought out protective stop to protect your currency trading capital. Even before you make a trade you should have worked out where your defensive stop will be. This is designed to be the minimal loss you are willing to take. You can set a stop in many different ways. 

For example:

You can set a dollar amount on every trade at which you want the trade to stop.
Percentage retracement - perhaps 10% from entry
Moving Averages - the reverse of the moving average entry
Channel breakouts – the reverse of the channel breakout entry
Stops based on areas of support and resistance
Time - If after a certain length of time the position hasn’t made a profit then exit.

An effective technique is also needed to let a profit run.

An efficient exit procedure is also necessary to allow a winning currency trading to create the most profit achievable and give back the smallest amount of it.

Trailing Stop:

Normally a trailing stop is in used to realize this purpose. A trailing stop follows a price to secure profits as the trade shifts in the traders favor; a trailing stop should never be moved the wrong way. Trailing stops can be calculated exactly the same way as you calculate a stop loss.

LIMIT Order:

A limit order is an order which protects your profits. It has a pre-determined exit/profit objective and is placed accordingly. This strategy obviously breaks the rule of letting your profits run and usually cuts short the best trades and thereby reduces your profit.

Source: www.etoro.com

Forex Trading Systems

Forex Trading Systems

Discretionary v/s Mechanical Trading Systems:

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Are mechanical Forex trading systems really any better? Can Automated Forex systems outperform discretionary Forex systems?  Let’s find out.

Some people prefer mechanical Forex trading systems while others prefer a more discretionary approach. My personal approach lies somewhere in between. Let’s look at each of them closely:

By definition, a mechanical or manual Forex trading system provides well defined entry and exit criteria and clearly describes trade setups and execution.  Such trading systems can be quite easily transformed into automated trading systems which can aid back testing, research and analysis.

The merit of such Forex systems lies in the fact that the guesswork is taken out of equation and trader only needs to follow clearly defined set of rules.  It helps to avoid emotions coming into the way of trading and with little discipline such systems can be easily be followed. Not only that but it also helps in reducing stress factor which is a bonus.

On the negative side of mechanical Forex trading systems we got problems with changing market conditions. No set of rules can cover all market conditions and there will be times when such systems would fail miserably.  Situation could become worse if the market conditions do not change for a sustained period of time. Automated Forex systems written based on such trading methods will be unable to cope with unpredictable market conditions.

These Forex systems bring out the artistic characteristics of traders. This is where the logic gets fuzzy and experience becomes paramount in making trading decisions.  A typical discretionary Forex trading system would use chart patterns and trend lines, which by a means are not determined by exact set of rules.

Adaptability and customization are two big advantages of any discretionary trading system.  Such Forex system can easily adapt to changing market conditions and rules can easily be changed to accommodate any unforeseen market scenarios. Experience and intuition are the cornerstones of any discretionary Forex trading systems and they can never be programmed into an Automated trading system.

On the flip side, such trading systems are hard to back-test and have unstable trade results caused mainly by emotions and stress level.  Such systems require much more trading experience and higher degree of discipline.In my opinion, anyone new to Forex trading should start off with mechanical trading systems, it helps to develop discipline and gain experience. It takes time to develop feel of the market and it then becomes easier to move towards more discretionary trading systems. My current method has clear set of rules that identify potential trades, I them use my experience to narrow down and chose the ones that I see fit for the current market conditions. With more work and analysis I hope to improve over time.

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