Forex Trading Examples

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In the following section you can find a short overview of succesfull real life trading decisions in such financial Markets as: Forex, Futures, Indices and Contracts for Difference. We advise you to examine this section after you get yourself familiar with the basic material regarding trading financial instruments.

1. Buying the EUR/USD currency pair in the Forex Market

• Initial conditions: Funds: 100 USD. Credit leverage chosen by the client: 1:200.
• For instance, at 09:15 h. we purchase 0.1 Lot of the European currency (in real terms 10 000 units) at the price of 1.5415 USD for 1 EUR. Without leverage, buying such a large amount of Euros requires the whole 1.5415*10000 = 15415 USD.
• Admiral Markets AS offers an interest-free credit leverage up to 1:200. Thus, in this case we need only 15415/200 = 77.08 USD of free funds on our trading account.
• One pip (i.e. a change in the exchange price of 0.0001) is equal to 1 USD when the EUR/USD trade is 0.1 Lot.
• Later that day, at 21:45 h. the price reaches 1.5550. If we decide to take profit at this point by closing the trading position manually (directly from the MetaTrader 4 terminal) or by using the option to set a Take Profit order in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
• The difference between the position’s opening price and closing price is 1.5550-1.5415 = 0.0135 (i.e. 135 pips).
• The profit earned equals 135*1 = 135 USD. So the total funds on the trading account after the position is closed: 100+135 =235 USD. As a result, the return on the investment (from the initial deposit) is 135% in 12 hours and 30 minutes.
• If we had opened a Buy position of 0.01 Lot (using 7.71 USD of funds on our account), we would have received 13.50 USDor if we had opened a position to Buy 1 Lot (using 770.75 USD of funds on our account), we would have received 1350 USD.

2. Selling the EUR/USD currency pair in the Forex Market 

 

• Initial conditions: Funds (trading account): 2000 USD. Credit leverage 1:100.
• At 09:10 we open a EUR Sell position with a volume of 1 Lot (in real terms: 100 000 units) at the price of 1.5730 USD for 1 EUR. To open such a position it’s not required to have previously purchased Euros (or to have it on the trading account) because all financial operations will be calculated in US dollars, i.e. in the deposit currency. Without a leverage, selling such amount of Euros would require the whole 1.5730*100000 = 157300 USD.
•  With a leverage of 1:100 we only need 157300/100 = 1573 USD of free funds on the trading account.
• One pip (i.e. a change in the exchange price of 0.0001) is equal to 10 USD of profit or loss for a trader when the trade volume is 1 Lot EUR/USD.
• At 15:55 the price reaches the value 1.5640. The decision to take profit is made exactly at this point. It is possible to close a trading position manually, directly from the MetaTrader 4 terminal, or by setting a Take Profit order in advance (it will be executed automatically on the Admiral Markets AS. trading server at the indicated price).
• The difference between the position’s opening price and closing price is 1.5730-1.5640 = 0.0090 (i.e. 90 pips).
• The profit earned equals 90*10 = 900 USD. So the total funds on the trading account after the position is closed: 2000+900 = 2900 USD. As a result, the return on the initial investment (from the initial deposit) is 45% in 6 hours 45 minutes.
• If we had opened a position with a volume of 0.01 Lots (using 15.73 USD from our account), the profit would have been 9 USD. If we had opened a Sell position with a volume of 0.1 Lots (using 157.30 USD of funds on our account), the profit would have been 90 USD.

3. Buying Crude Oil Futures (Contracts for Difference) 

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• Initial conditions: Funds (trading account): 1000 USD.
• At 14:15 we purchase 0.5 Lots of Light Sweet Crude Oil (#QM) at the price of 137.55 USD for one barrel (1 Lot equals 500 barrels of oil). Without credit leverage, the margin requirements for 1 Lot of Crude Oil is set to 1350 USD, so for the purchase of half of a Lot is only 1350*0.5 = 675 USD of free funds is required to be on the trading account.
• One pip (i.e. a change in the oil price of 0.01) is equal 2.50 USD of profit or loss for a trader when the volume of a trade is0.5 Lot (for a round Lot one pip is equated to 5 USD as indicated in the #QM specification).
• The next day at 16:30 the oil price reaches the value of 144.70 USD for 1 barrel. Let's assume that the decision to take profit is made exactly at this point. In MetaTrader 4  It is possible to close a trading position manually, directly from the terminal, or by setting the pending Take Profit order in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
• The difference between the opening price and closing price is 144.70-137.55 = 7.15 USD (i.e. 715 pips).
• The profit earned equals 715*2.5 = 1787.50 USD. As indicated in the #QM specification, a commission to the broker for transferring the position to the following day (Swap Long) should be 10*0.5 = 5 USD. So the total funds on the trading account after the position is closed: 1000+1787.5-5 = 2782.5 USD. As a result, the return on the initial investment (from the initial deposit) is 178.25% in less than one day.
• If we had opened a Buy position of 0.01 Lot (using 13.50 USD of funds on our account), the profit would have been 35.75 USD. A position with a volume of  1 Lot (using 1350 USD of funds on our account), would have given a profit of 3575 USD.

4. Buying Microsoft Corp. equities (Contracts for Difference) 

  

• Initial conditions: Funds (trading account): 3000 USD. Credit leverage for all US Stocks CFDs: 1:10.
• At 15:05 after the opening of the trading session at the NASDAQ Stock Exchange (USA) we purchase 500 CFDs (i.e. 500 shares) of Microsoft Corporation at the price 25.25 USD for one share (the total amount of transaction is 500*25.25 = 12625 USD). With the help of 1:10 credit leverage, for the fulfillment of this transaction we only need 12625/10 = 1262.50 USD of free funds + the commission to the broker would be 500*0.06 = 30 USD (as indicated in [MSFT] specification).
• Later that day at 19:15 the price reaches 26.45 USD for one share. If the decision to take profit is made exactly at this point. In MetaTrader 4  It is possible to close a trading position manually, or by setting the pending Take Profit order in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
• The difference between the opening price and closing price is 26.45-25.25 = 1.20 USD, i.e. the cost of 500 shares now makes 500*26.45 = 13225 USD.
• The profit earned equals 13225-12625 = 600 USD. So the total funds on the trading account after the position is closed: 3000+600-30 = 3570 USD

5. Buying [DJI30] index CFD 

• Initial conditions: Funds (trading account): 300 USD.
• At 16:05 we make the decision to purchase 1 lot of [DJI30] (i.e. 1 contract for difference of the Dow Jones Industrial Average Index) at the price of 7910 USD. Our margin requirements for index trading are 2% of the transaction size, so for the purchase of one lot, it is necessary to have 7910*0.02 = 158.20 USD of free funds available on the trading account.
• One index point (i.e. a change in the price of 1.0) is equal to 1 USD of profit or loss for a trader when a volume of 1 Lot is traded, as indicated in the [DJI30] specification.
• The same day at 17:15 the index reaches a value of 7972. Let's assume the decision to take profit is made exactly at this point. In MetaTrader 4  It is possible to close a trading position manually, or by setting the pending Take Profit order in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
• The difference between the opening price and closing price is 7972-7910 = 62 index points.
• The profit earned equals 62*1 = 62 USD. So the total funds on the trading account after the position is closed: 300+62 =362 USD.

6. Selling [FTSE100] index CFD

• Initial conditions: Funds (trading account): 1500 USD.
• At 11:25 we make the decision to sell 5 lots of [FTSE100] (i.e. 5 contracts for difference of the Financial Times Stock Exchange 100 Index) at the price of 3987.5 GBP. For opening such position it is not required to have previously purchased an index CFD. Our margin requirements for index trading are 2% of the transaction size, so for the purchase of one lot it is necessary to have 3987.5*0.02*5 = 398.75 GBP.
• For example, the Forex market rate of the GBP/USD currency pair currently equals 1.4992. Converting to USD, we will need 398.75*1.4992 = 597.81 USD of free funds available on the trading account in order to open the position.
• One index point (i.e. a change in the price of 1.0) is equal to 5 GBP of profit or loss for a trader when a volume of a trade is 5 Lots, as indicated in the [FTSE100] specification.
• The same day at 13:10 the index reaches a value of 3965.0. Let’s assume that the decision to take profit is made exactly at this point In MetaTrader 4  It is possible to close a trading position manually, or by setting the pending Take Profit order in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
• The difference between the opening price and closing price is 3987.5-3965.0 = 22.5 index points.
• The profit earned equals 22.5*5 = 112.5 GBP. For example, the Forex market rate of GBP/USD currency pair is currently equal to 1.4933. Converting to USD currency, we have earned 112.5*1.4933 = 168 USD. The total funds on the trading account after the position is closed: 1500+168 = 1668 USD.

7. Buying US Dollar Index Future CFD (#DX)

• Initial conditions: Funds (trading account): 500 USD.
• At 11:55 we make the decision to purchase 1 lot of #DX (i.e. 100 contracts for difference of US Dollar Index Future) at the price of 84.958 USD. Our margin requirements for index trading are 2% of the transaction size, so for the purchase of one lot, it is necessary to have 84.958*100*0.02 = 169.92 USD of free funds available on the trading account.
• One point (i.e. a change in the price of 0.01) is equal to 0.10 USD of profit or loss for a trader when the volume of a trade is 1 Lot, as indicated in the #DX specification.
• The same day at 12:59 the index reaches a value of 85.450. We will assume that the decision to take profit is made exactly at this point. In MetaTrader 4  It is possible to close a trading position manually, or by setting the pending Take Profitorder in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
• The difference between the opening price and closing price is 85.450-84.958 = 0.492, i.e. 492 points.
• The profit earned equals 492*0.10 = 49.20 USD. So the total funds on the trading account after the position is closed: 500+49.20 = 549.20 USD

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Source:http://www.admiralmarkets.com

Asymmetric Risk- Taking. Are you guilty?

Asymmetric Risk- Taking. Are you guilty? 

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Why we cut profits early and let losses run? In this article I would address the real trading psychology behind it. Lets start with a simple test !

Most traders new to Forex are often guilty ofletting their losses run and cutting their profits short, even experienced traders do it every once in a while. Before we begin, answer the two questions below. When faced with a scenarios below which option would you prefer?

A. 80% chance of winning $2,000 and a 20% chance to win nothing
B. $1500 Profit for sure

A. 80% chance of losing $2,000 and a 20% chance to lose nothing
B. $1500 Loss for sure

Most traders would chose Option B in Scenario 1 and Option A in Scenario 2. Compare these results with your own answers. If you chose the same then unfortunately you will be among 95% of traders who fails at Forex. Read Forex Loser’s Checklist, and see if you qualify. Lets look at psychology behind your decisions.

The two scenarios are quite interesting. Our perception of gain and loss changes our behaviour. When the options of a risky scenario involve profits, traders are risk-averse (risk-avoidance); however when options of a risky scenario involve losses, traders are risk-seeking. The other words, traders tend to seek risk in face of possible loss and avoid risk when profits are at stake.

This asymmetrical way of risk-taking has great implications on trading decisions we make as a trader. Our decision are based “subjectively”, taking in account recent events rather than looking at overall net trading balance. Let me explain:

After a profitable trade, the decision to close trade and take profit on next trade depends on gains made on previous trade. A trader starts to think ” I’ve made enough on the first trade, lets not lose it all and give away all the profits. Take early profit and call it a day”. At the same time, on a losing position trader delay cutting losses and hold on to trades hoping that it will reverse. The result is that trader realize profits way too early while allowing losses to accumulate.

A professional trader just need to act opposite to typical human behaviour. By considering the impact of losses on net trading balance and not on recent history of trading , a trader can make right decision of letting a losing position go early while keeping the profitable position running. Trading Robots have this advantage over manual trading as they help avoid implications of trading psychology.

Another interesting aspect of trading is the impact of losses on our minds. The feeling of losing an amount is much worse than pleasure gained from winning the same amount. Hence traders, hate losing 10,000 more than they love winning 10,000. Psychologically losses have twice the impact, no wonder why a trader don’t want to close a loosing position and willing to risk more.

A good trader is not a trader who makes millions in fraction of a second. A good trader is one who know where to cut his positions. It is not about making money; it is about losing as less as possible when we are wrong. Thus managing the psychological asymmetry in risk-taking is the key for succeeding as a trader. Bottom line “An experienced trader stands out from a new trader not by how he makes money, but how he loses money”

What should you know about Forex Signals ?

The 15 Questions you should ask your Broker

The 15 Questions you should ask your Broker.

There are many Forex Brokers, but not all were created equal. When it comes to your money, you want to be certain that your Broker meets your expectations. It is your right to ask as many questions as you need to feel comfortable about your venture and if you don’t get the answers your want, you should consider finding another Broker.

Why Size Does Matter

Size matters. Because the Forex market is an over-the-counter market with no centralized exchange, not everyone receives access to the same prices or quality of execution. Institutions with the largest trade volume and the most solid financials have access to better prices and execution. The bigger the broker, the better they are able to pass on the benefits of size, better prices, and better execution to you.

Who Executes Your Orders?

Not all Forex Brokers quote rates the same way. Below are two possible options:

1. Dealing Desk means that your Forex Broker creates the pricing and executes your orders. The spread is usually fixed, which means that traditionally, the spreads are higher than average variable spreads. Check for restrictions on placing orders during news or economic events; for many traders, this is a key time to trade.
2. No Dealing Desk usually means that multiple banks stream competing prices through your Forex Broker, so your orders are executed by the banks themselves. This means that there are usually no restrictions on trading news or economic events, but you should check with your broker.

Spreads

Fractional Pip Pricing

Most major currency pairs are quoted to four decimal places, so a pip would typically equal .0001 or one basis point. Forex Brokers generally round the price up or down to the nearest pip; but some now offer Fractional Pip-Pricing. It ads an additional decimal place, so spreads are usually tighter and more accurate.

Scalping the Market

Many traders favor short-term scalping strategies, which involves placing orders inside the spread. For scalping to be profitable for the client, the market maker must lose, so some Forex Brokers disallow the strategy. This strategy involves a high level of risk.

Rollover

Rollover is interest earned or paid on Forex positions held overnight. It varies depending on the difference in interest rates between a currency pair and fluctuates day to day with the movement of prices. A Negative Roll is when you sell a currency that pays higher interest rate, so you pay interest. A Positive Roll is when you buy a currency that pays higher interest rate, so you can earn interest. Negative Rolls are routine, but not all Forex Brokers offer positive rolls.

The "Carry Trade" is a popular Forex strategy which benefits from Positive Rolls and the high leverage available in the Forex market. For example, if you buy the USD/JPY, you can earn a positive roll. You are essentially borrowing the Japanese yen at a low interest rate cost to buy the US dollar with a high interest rate earning. Remember that leverage can dramatically amplify your losses, so beware of this technique, as it carries a high level of risk.

Hedging

Hedging lets you simultaneously hold BUY and SELL positions in the same currency pair. The most effective way to trade a market if you are uncertain about its direction is to find concrete support and resistance levels. This allows you to pinpoint levels where significant price action will take place.

Hedged positions do not necessarily limit risk as traders can find themselves losing on both sides of the trade. While this strategy tends to work temporarily in range markets, it does not work well in trending markets. Placing stop-loss orders on your positions to mitigate your risk is strongly recommended.

The National Futures Association, a self-regulatory organization in the US, adopted a new Compliance Rule 2-43 in 2009 that prohibits customers of Forex Dealer Members to open a "hedged" position in the same account. This rule may not apply to Forex Dealers outside of the US.

Customer Support

Forex trading works 24 hours a day. Does your Forex Broker? When you ask them questions, do they answer them clearly and honestly or do they give you the run-around? If your Forex Broker can’t answer the 15 questions below, you may want to look for one who can.

15 Questions You Should Ask Your Forex Broker

The following 15 questions are based on the above information and relate to basic information that your Forex Broker should answer without hesitation.

1. How long have you been a Forex Broker?
2. In what financial condition is your company? Will you show me your balance sheet?
3. Do you have good relationships with reputable banks?
4. Who is quoting the rates, my broker, a bank, or multiple banks?
5. Are the spreads fixed of variable?
6. How tight are the spreads?
7. Do you offer Fractional Pip Pricing?
8. Are there any trading restrictions?
9. Can I place orders inside the Spread?
10. Can I earn interest on positive rolls?
11. Can I earn positive rolls at all margin levels?
12. Are rollover rates displayed prominently? Where?
13. Does the trading platform allow me to hedge?
14. Can I lose more money than I put into my account?
15. What is the quality and availability of customer service?

Be aware that trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Source: http://www.xe.com/currencytrading/questions.php

What should you know about Forex Signals ?

Top 10 Biggest Forex Trading Mistakes & Misconceptions

Top 10 Biggest Forex Trading Mistakes & Misconceptions

All Forex traders tend to commit similar mistakes when interacting with the market. They also tend to harbor similar misconceptions about trading and what successful Forex trading is all about. This week’s article can be thought of as a guide to what the biggest trading mistakes and misconceptions are and what you can do to put an end to them. You should refer back to this article often to help you stay on the path to becoming a profitable trader. This article will give you some valuable insight and direct you to other relevant articles so that you can stop making the same trading mistakes and let go of any misconceptions you hold about Forex trading.

1. Trading with indicators and fancy tools –

Many Forex traders, especially beginners, tend to erroneously believe that they need to use indicators to fully understand Forex price movement, or that indicators will help them in some way become more profitable. This leads many traders to concentrate solely on reading and trading from indicators, instead of the actual price action that these indicators are derived from. The bottom line is that indicators provide no real advantage over simply learning to read a “naked” price chart, and they actually inhibit your progress as a trader because they distract you from learning to read the pure price dynamics that occur on the charts every day. Price action tells you what is most likely to happen next in the market, you just have to know how to interpret it. After learning to trade with price action you will soon learn why trading with indicators destroys Forex trading success.

2. Not fully understanding and implementing risk / reward –

If there is one thing that all professional traders have in common it is that they fully understand the power of risk reward and how to implement it on every single trade they take. Beginning traders obviously know the importance of making sure their winners are larger than their losing trades, but they often do not understand how this translates into real world trading and what it really means. Every single trade you consider taking should be viewed in terms of risk to reward. You have to consider not only if your trading edge is present, but if the realistic potential of the risk reward on the trade makes it worth taking.

We typically want to make at least two times our risk on any one trade, doing so gives us an excellent shot at making consistent money over the long-run. Many traders get caught up on losing 2 or 3 trades in a row because they fail to understand the full implications and practical application of risk reward ratios that take time to play out. Check out the following articles to learn why risk reward in Forex is the true Holy Grail, and to learn how Forex risk reward and price action trading can make you a consistently profitable trader.

3. Not understanding position sizing –

Many traders come into the Forex market and they do not understand that just because you put a wider stop loss on a trade does not mean you have to risk more money or that just because you put a smaller stop loss on a trade does not mean you automatically risk less. A very common mistake that traders often make is that they adjust their stop loss to meet the number of lots they want to trade, instead of adjusting their position size to meet the most logical and realistic stop loss distance. A thorough understanding of position sizing is very important to your overall money management plan and to correct implementation of risk reward on every single trade.

4. Not having a Forex trading plan –

Most beginning traders make the mistake of not having a functional trading plan, and they also harbor the misconception that they don’t really need one. Forex trading needs to be treated as a business, and just like having a business plan is necessary for the growth and prosperity of any business, having a Forex trading plan is necessary for the growth and prosperity of any trader. A trading plan helps to keep you accountable in a world that allows you to do an unlimited amount of damage to yourself; the world of Forex trading. Most traders seem to get fixated on how much money they can make and thus lose focus of the real risk involved in Forex trading, aForex trading plan that you read every single day can help to keep you focused and on track, so that you don’t fall off the wagon and begin trading in a delusional manner.

5. Gambling instead of trading –

A question that every trader who has been trading for any period of time needs to stop and ask their self is; “Am I gambling or am I trading responsibly?”. Almost every trader falls into some sort of cycle where they are simply gambling instead of trading at some point in their trading career. The quicker you can recognize this and pull yourself out of this deadly cycle the quicker you will become consistent and profitable. Trading should really be viewed as “risk managing”, and not necessarily as “trading”, the traders who manage their risk the best are the ones who make the most money; take care of your risk and the market will take care of the rest; that is a very general anecdote, but it is also true, you have to control your risk very consistently if you don’t want to end up gambling in the market, when you put your focus on risk control instead of on how much money you can make the money will seem to come naturally. So, are you a Forex trader or a gambler?

6. Allowing emotions to cloud judgment / giving into emotions –

There are many factors that can contribute to and induce emotional trading, and emotional trading is the reason why so many traders lose money in the markets. Emotional trading is the end of result of not doing other things right, like anything or everything else listed in this article. Any one of the trading mistakes listed in this article can induce emotional trading, and once you begin trading emotionally it is extremely difficult to pull yourself out of its grips because it is a psychologically reinforcing problem that traders simply cannot shake unless they totally stop trading for a period of time and take a step back to think logically about what they are doing.

The Forex market can be an excellent arena for self-improvement and mastery of one’s own impulses and mind, or it can be an arena for total financial destruction and loss, which arena you ultimately create depends on whether or not you can master your primitive emotional brain structures with your more advanced logically thinking and planning brain structures. Read about how price action will help cure emotional trading problems.

7. Not having patience –

Patience is scare among amateur Forex traders. The reason it is scarce is because most new traders approach the market from the complete wrong perspective. Most people are attracted to trading because they think it will “fix” their life in some way, whether through freeing them from a job they hate or by providing them with extra money. While these are by no means bad or inappropriate goals to have, when you approach your trading from a feeling of “needing” it to work because you have no other options, you are almost certainly doomed to fail as a trader.

You have to be completely fine with whatever happens to your trades, and this means not trading with money you can’t afford to lose. Once you start approaching the market from a perspective of not feeling like it “has to” work out for you to be happy in life, you will begin to exercise more patience in the Forex market and this will drastically improve your overall winning percentage and will actually make you more profitable faster.

8. Not trading higher time frames –

I have been trading for nearly 10 years now and I still almost solely look at the daily and 4 hour charts. It amazes me to no end how many beginning traders that I encounter who want to trade shorter time frames. I get emails almost every day from traders asking me questions about trading the 15 minute charts, or even lower time frames. The simple fact of higher time frames that makes me concentrate most of my trading efforts on them instead of their lower time frame counterparts is that they act as natural filters of price movement, filtering out the price action that is not useful and leaving with you with a much clearer picture of what price is likely to do. This is why when you trade higher time frames in Forex combined with price action you have an extremely potent trading strategy at your finger tips.

9. Over-trading / being too involved

The quickest way to becoming a full-fledged emotional trader right behind over-leveraging, is over-trading. I find that traders are often guilty of over-trading and don’t even realize it. Most traders that I encounter do not spend long enough demo trading; this means they jump into live-market trading too soon and as a result of this they begin over-trading because they have not spent enough time on the demo charts perfecting their Forex trading strategy. Over-trading is most tempting after a trade, whether it is a loser OR a winner. Traders need to be especially aware of their state of mind immediately after exiting a trade, because this is when emotions like revenge and euphoria hit their peak, making it very likely the trader will dive back in the market with no real sound reasoning behind their action. Forex trading can be addictive and you certainly should trade less to profit more.

10. Not taking profits –

Yet another area where Forex trading is a paradox is profit taking. While hope is a great feeling to have in almost every other endeavor in life, in the financial markets hope is often the downfall of traders. They hope for larger profits, or they hope the next trade will allow them to make back all the money they lost. Most retail traders simply do not fully realize or understand the implications of the fact that the Forex market ebbs and flows, it never moves in a straight line for every long. So, when trying to build up a relatively small trading account it is essential to your equity curve and to your emotional sanity that you take profits as they come, instead of constantly hoping and holding out futilely for ever larger profits.

This is why I teach that traders should often take profits of 2 or 3 times risk, because generally speaking if you hope for more than this once you are up 2 to 3 times risk, the market is going to reverse and move back towards your entry. These reversals are what shake out most amateur traders, so it is crucial that you take profits when you have them, otherwise they are likely to disappear very quickly. As the Kenny Rogers song goes: “You’ve got to know when to hold em and know when to fold em”.

Source:http://www.learntotradethemarket.com

How to maximize trading performance?

Maximizing Trading performance:

We all know how important it is to find our edge in the markets. Finding an edge could take months even years but once we have acquired such an edge, it is not the end and expecting windfall profits could only be a dream which is as good as wishful thinking. The next step is to work on yourself and develop the right mindset. Here are some tips that can help you Maximise Trading Performance:

1. Focus on implementing your trading plan perfectly for every trade

2. Focus on long term gains For ex. Weekly or Monthly gains as opposed to results of individual trades

3. Track and analyse performance to closest minute detail

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4. Evaluate your actions and make changes on regular basis

5. Keep a positive frame of mind

6. Avoid any conversations or thoughts that instil doubts about your ability as a trader

7. Be a teacher, help others maximise their performance, which in turn will maximise your own

To find a systematic method that can help you avoid emotions and discretionary judgement is just the first step. I can’t emphasise enough how important is to then develop the right mindset. Hopefully the tips above help. What do you do to Maximise Trading Performance?

What should you know about Forex Signals ?

Looking for Forex Signals?

Guide to Forex Trading

Simple guide to Forex 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:

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 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:http://www.avafx.com

Technical Trading Guide

1. CHART THE TRENDS AND RANGE BOUND MARKETS

Use long term charts to decide trends or range bound markets. Begin a chart analysis with daily, weekly and even monthly charts spanning several years if possible. A larger scale chart essentially shows the life of the market and provides clearer visibility and a better long-term perspective on a market. Once the long-term has been established, consult daily and intra-day charts, these charts can include anything from say 10 minute to daily charts. A short-term market view alone can often be deceptive. Even if you only trade the very short term, you will do better if you're trading in the same direction as the intermediate and longer-term trends. If there is no trend then a different strategy is necessary, possibly playing the range until the market begins to trend once more.

As can be seen in the 1-hour EUR/USD candle chart below there has been an uptrend with three peaks and three troughs. Long entry positions would at 1.2700, 1.2760 and 1.2800.

 

Past results are not necessarily indicative of future results and the examples are not representative of all customer accounts.

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2. FOLLOW THE TREND

If you determine the trend, then follow it. Market trends come in a variety of terms - long-term, intermediate-term and short-term. The first thing you have to determine is what type of a trader are you, long term or day trader, that decision will determine which charts you should be using. For instance, if you"re day trading, use the daily and intra-day charts, but always use the longer-range chart to determine the trend, and then use the shorter-term chart for timing. Make sure you trade in the direction of that trend and then buy on dips if the trend is up and sell on rallies if the trend is down.

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3. LOCATE SUPPORT AND RESISTANCE LEVELS

Find the support and resistance levels. As above when you want to buy an instrument, its best to buy near support levels. The support is usually a previous reaction low. Using the same logic, the best place to sell an instrument would be near its resistance levels. The resistance level is usually a previous peak. After a resistance peak has been broken, it will usually provide support on subsequent pullbacks. In other words, the old high becomes the new low. In the same way, when a support level has been broken, it will usually produce selling on subsequent rallies - the old low can then become the new high.

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4. RETRACEMENTS

Measure retracements in percentage terms. Market corrections up or down often retrace a significant portion of the previous trend. One can measure the corrections in an existing trend in simple percentages. A fifty percent retracement of a prior trend is most common. A minimum retracement is usually one-third of the prior trend. The maximum retracement is usually two-thirds. Fibonacci retracements of 38% and 62% are also worth watching. Therefore popular buy points in an uptrend are usually between 33-38% retracement of the original trend.

As can be seen from the chart below, when joining the trough at 1.2750 to the peak at 1.2890 in the 1-hour EUR/USD chart we can see the Fibonacci levels drawn out. The first retracement ended at the 38% line and the major retracement at the 62% line.

Past results are not necessarily indicative of future results and the examples are not representative of all customer accounts.

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5. TREND LINES

One of the simplest and most effective charting tools are trend lines  -- use them. Draw a straight line that join two points on the chart. Up trend lines are drawn along two successive lows and down trend lines are drawn along two successive peaks. Prices will often pull back to trend lines before resuming their trend. The breaking of trend lines often signals a change in a trend. The longer a trend line has been in effect, and the more times it has been tested, the more significant it becomes; a trend line becomes valid if it is touched at least three times.

6. MOVING AVERAGES

Moving averages often provide objective buy and sell signals, hence they should be watched. They show you if an existing trend is still in motion and help confirm a trend change. Do not rely on moving averages to tell you in advance if there is a trend change imminent; use it as a back-up to your chart analysis for trend identification. A combination chart of two moving averages is the most popular way of finding trading signals. Signals are given when the shorter average line crosses the longer. Price crossings above and below a 40-day and 200-day moving average also provide good trading signals. Since moving average chart lines are trend-following indicators, they work best in a trending market.

As can be seen in the EUR/USD 1-hour chart below the 5-period and 25-period moving averages project and confirm the trend in progress. The 5-period moving average crosses over the slower 25-period moving average at 1.2715 confirming the up-trend with an exit point at 1.2770. The same rate 1.2770 is another indication of a resume in the up-trend with an exit at 1.2850.

Past results are not necessarily indicative of future results and the examples are not representative of all customer forex trading accounts.

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7. OSCILLATORS

Oscillators help identify overbought and oversold markets. While moving averages offer confirmation of a trending market, oscillators can often warn us in advance that a market has rallied or fallen too far and will soon turn or retrace. Two of the most popular oscillators are the Relative Strength Index or RSI and the Stochastics. Both these oscillators work on a scale of 0 to 100. With the RSI, readings over 70 are overbought while readings below 30 are oversold. The overbought and oversold values for Stochastics are 80 and 20. Oscillator divergences often warn of market turns and as opposed to moving averages they work best in range bound markets. Weekly signals can be used as filters on daily signals. Daily signals can be used as filters for intra-day charts.

As can be seen in the EUR/USD 1-hour chart below, the Stochastics break through the 80-20 barriers and cross over themselves on corrections of the price. This occurs several times.

 Past results are not necessarily indicative of future results and the examples are not representative of all customer accounts.

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8. KNOW THE WARNING SIGNS

The Moving Average Convergence Divergence (MACD) indicator combines a moving average crossover system with the overbought/oversold elements of an oscillator. A buy signal occurs when the faster line crosses above the slower and both lines are below zero. A sell signal takes place when the faster line crosses below the slower from above the zero line. Longer-period signals take precedence over shorter-period signals. The MACD histogram plots the difference between the two lines and gives even earlier warnings of trend changes. It's called a histogram because vertical bars are used to show the difference between the two lines on the chart.

As can be seen in the EUR/USD 1-hour chart below, the MACD indicators cross over one another beneath the zero line to show a buy signal and vice versa for the sell signal. This occurs most prominently at 1.2760 to buy, 1.2870 to sell.

past results are not necessarily indicative of future results and the examples are not representative of all customer accounts.

9. TREND OR RANGE BOUND MARKET

The Average Directional Movement Index (ADX) line helps determine whether a market is in a trending or range bound phase. It measures the degree of trend or direction in the market. A rising ADX line suggests the presence of a strong trend. A falling ADX line suggests the presence of a trading market and the absence of a trend. A rising ADX line favors moving averages; a falling ADX favors oscillators. By plotting the direction of the ADX line, the trader is able to determine which trading style and which set of indicators are most suitable for the current market environment.

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10. STUDY

Technical analysis is a skill that improves with experience and study. The more you learn and practice the better you'll be.  Keep studying, fine tune methods, learn what works for you and what doesn't and remain technical and not emotional.

Source: www.avafx.com