Forex Trading|How to trade foreign currencies
Oct
09
Filed Under (Trading USD-EUR) by admin
8 EASY STEPS TO FOREX TRADING SUCCESS
1) There are basic steps to master when first beginning Forex Trading. Many different issues come into play when implementing successful Forex Trading strategies.
2) Of course, conducting your very own Forex Trading program can be very lucrative and is the best home-based business there is.
3) Now, let’s explore some of the important parts of a solid Forex Trading Simplified plan.
Here you will learn what Forex is and what it will do for you. To begin, you need to understand the meaning of the term “Forex”. It means FOReign EXchange market. This is the international foreign currency exchange market where all types of currencies are bought and sold. The Forex market started in the late 1960’s when floating currencies and free exchange rates were first introduced worldwide. At that time, the Forex market traders were the only players in the market. They alone decided on the value of one type of currency against another. All solely based upon a particular currency’s supply and demand.
The Forex market is very different for several reasons. This is one of the very few markets that is free from any external controls and cannot be manipulated. It also requires little or no trading qualifications. There is no doubt it is the largest worldwide financial market. In 2007 worldwide trading reached 2 trillion US$. The money moves around so fast it is not possible for a single trader to make any major change that would affect the price of any international currency. Also, unlike Stocks, Forex traders are able to open and close their positions all within seconds. This is due to the fact that there is always a large number of willing and eager buyers and sellers.
STEP 1 FINDING A FOREX TRADING STRATEGY THAT WORKS WITH MINIMUM OR NO LOSSES
To be really successful in Forex Trading you must use your own trading strategy. Some traders rely only on technical analysis; others will prefer a more fundamental approach. It should be noted here that most successful traders use some form of available and automated trading software to maximize trading opportunities and minimize excessive time in front of a monitor.
It is necessary to have a trading strategy that gives you an “edge” in your trading the market, discipline to use it, and solid money management. See if you can answer below questions:
1. Do you have a special trading advantage/skill..?? What is it..?? If you don’t know, then you don’t have an advantage or special knowledge.
2. Consider your discipline……do you really follow your trading strategy without fail, even after two successive losing trades..?? Or, do you simply drop the strategy and move on to the next one..??
3. Consider your money management: are you allocating an appropriate fund amount and also controlling the amount of risk on each trade..??
Almost all traders fail because they cannot answer “Yes” to all three questions. The secret to obtaining the discipline needed to be a winner is to have a strategy that provides a winning edge, includes sound money management practices and is simple to use.
Any trading programs that you use should be completely automated, not require extensive technical knowledge, and NOT require sitting in front of a PC monitor all day as most software programs do. I have found a few, very few, software trading programs out there that meet this requirement and really do work.
STEP 2 TRENDS
You must understand that Forex market prices always move by trends. In fact, there are certain movements that have been studied over several years to identify these trend patterns. Such trends must be understood in order to have a good trading strategy. For any account of US$ 20,000 and under, trading with a specific trend understanding will maximize your odds of making a profit. A lot of new traders seek to trade in all different directions at the same time when they should be focusing on more simple trend patterns.
STEP 3 TRADING ACCOUNT SIZE TO USE
There is not one single right answer to this question. To start with, you should only use trade funds that you can afford to lose. Forex brokers allow you to trade standard and/or mini lots. The margin depends on the pair you are trading. For a standard lot it is around $1,000 and for a mini lot it is around $200. Technically, you could open an account with $400 and trade 2 mini lots. Obviously, you would be violating your basic risk management rules and most likely would end up losing your “grubstake”.
You must never risk more than 2% of your account size on any one trade. Therefore, if you take out 1 mini lot and risk 50 pips, that would be approx $50 of trade risk (assuming a US dollar counter currency pair). In other words, you must have an account size of at least $2,500 ($2,500 x 2% = $50) to take out that specific trade without violating your risk management rules.
STEP 4 TOP FOREX PAIRS TO TRADE
Not all Forex pairs are suitable for trading. We need to find liquid markets that have enough price movement to make a trade worthwhile.
The following pairs are the most universally traded, are the most liquid pairs, and the only ones that I would even consider trading. They are not listed in any particular order:
GBP/USD – British Pound Sterling/US$ EUR/USD – Euro/US$ USD/JPY – US$/Japan Yen USD/CAD – US$/Canadian Dollar USD/CHF – US$/Swiss Franc
In fact, to further ease your Forex trading, you should limit your trading to the two most liquid and widely traded pairs: GBP/USD EUR/USD Following this recommendation alone will really reduce demands on your trading time without giving away any profit potential.
STEP 5 BROKER ACCOUNT OPENING
To open a Forex account, you simply fill out a broker application and provide the necessary ID. The application likely will include a margin agreement stating that the broker will be allowed to intervene in any trade which appears to be risky.
This agreement is made to protect the broker’s margin interests since trading is done with the broker’s funds. However, it is strongly advised that you establish an account and fund it 100% and never use any margin provisions.
STEP 6 HAVE TWO ACCOUNTS
For new Forex traders it is highly recommended to have two accounts; One as a demo account and another as your “live account. Use the demo account to learn the trading game and to test the best alternative market moves. Also, use a demo account to follow your “live” account trades so you can determine if you need to make any corrections or trade changes.
STEP 7 CHART REVIEWS
This is critical. always review the One Hour – Four Hour – and Daily charts that pertain to your specific trade setup to determine actual status and any movements. Some traders also trade at 15 and 30 minute time intervals. However, this requires some experience and is not recommended for new Forex traders.
STEP 8 FINALLY UNCOVER THE BIG MONEY OPPORTUNITIES WITH FOREX TRADING
In most cases, Forex markets are just like any other liquid markets such as stocks, bonds, or commodities. However, there is one major difference with the Forex markets. That is the trends are stronger and longer lasting and occur much more frequently than do trends in other markets.
It is quite common for a Forex pair to begin a new trend that will last for many weeks and sometimes months. I refer to these events as the “Forex Major Event”. When you combine these Major Event trends along with the ability to leverage a small account, this is where you can find the favorable opportunities trading Forex. Major Event trends have been known to often give 300 to 800 pip ranges. Now, those are really and truly BIG money opportunities.
In conclusion, Forex Trading success requires an understanding of: trading strategy, trends, account size to use, best Forex pairs to trade, etc. To ensure your trading success it is critical that you stay with a trading plan and treat it as a business. You need to always track your results and make necessary changes and improvements as you progress.
It should be noted that several additional and important Forex issues have been finally uncovered, however, they could not be covered in the short space given here.
By: Dr Tom Moyer
1) There are basic steps to master when first beginning Forex Trading. Many different issues come into play when implementing successful Forex Trading strategies.
2) Of course, conducting your very own Forex Trading program can be very lucrative and is the best home-based business there is.
3) Now, let’s explore some of the important parts of a solid Forex Trading Simplified plan.
Here you will learn what Forex is and what it will do for you. To begin, you need to understand the meaning of the term “Forex”. It means FOReign EXchange market. This is the international foreign currency exchange market where all types of currencies are bought and sold. The Forex market started in the late 1960’s when floating currencies and free exchange rates were first introduced worldwide. At that time, the Forex market traders were the only players in the market. They alone decided on the value of one type of currency against another. All solely based upon a particular currency’s supply and demand.
The Forex market is very different for several reasons. This is one of the very few markets that is free from any external controls and cannot be manipulated. It also requires little or no trading qualifications. There is no doubt it is the largest worldwide financial market. In 2007 worldwide trading reached 2 trillion US$. The money moves around so fast it is not possible for a single trader to make any major change that would affect the price of any international currency. Also, unlike Stocks, Forex traders are able to open and close their positions all within seconds. This is due to the fact that there is always a large number of willing and eager buyers and sellers.
STEP 1 FINDING A FOREX TRADING STRATEGY THAT WORKS WITH MINIMUM OR NO LOSSES
To be really successful in Forex Trading you must use your own trading strategy. Some traders rely only on technical analysis; others will prefer a more fundamental approach. It should be noted here that most successful traders use some form of available and automated trading software to maximize trading opportunities and minimize excessive time in front of a monitor.
It is necessary to have a trading strategy that gives you an “edge” in your trading the market, discipline to use it, and solid money management. See if you can answer below questions:
1. Do you have a special trading advantage/skill..?? What is it..?? If you don’t know, then you don’t have an advantage or special knowledge.
2. Consider your discipline……do you really follow your trading strategy without fail, even after two successive losing trades..?? Or, do you simply drop the strategy and move on to the next one..??
3. Consider your money management: are you allocating an appropriate fund amount and also controlling the amount of risk on each trade..??
Almost all traders fail because they cannot answer “Yes” to all three questions. The secret to obtaining the discipline needed to be a winner is to have a strategy that provides a winning edge, includes sound money management practices and is simple to use.
Any trading programs that you use should be completely automated, not require extensive technical knowledge, and NOT require sitting in front of a PC monitor all day as most software programs do. I have found a few, very few, software trading programs out there that meet this requirement and really do work.
STEP 2 TRENDS
You must understand that Forex market prices always move by trends. In fact, there are certain movements that have been studied over several years to identify these trend patterns. Such trends must be understood in order to have a good trading strategy. For any account of US$ 20,000 and under, trading with a specific trend understanding will maximize your odds of making a profit. A lot of new traders seek to trade in all different directions at the same time when they should be focusing on more simple trend patterns.
STEP 3 TRADING ACCOUNT SIZE TO USE
There is not one single right answer to this question. To start with, you should only use trade funds that you can afford to lose. Forex brokers allow you to trade standard and/or mini lots. The margin depends on the pair you are trading. For a standard lot it is around $1,000 and for a mini lot it is around $200. Technically, you could open an account with $400 and trade 2 mini lots. Obviously, you would be violating your basic risk management rules and most likely would end up losing your “grubstake”.
You must never risk more than 2% of your account size on any one trade. Therefore, if you take out 1 mini lot and risk 50 pips, that would be approx $50 of trade risk (assuming a US dollar counter currency pair). In other words, you must have an account size of at least $2,500 ($2,500 x 2% = $50) to take out that specific trade without violating your risk management rules.
STEP 4 TOP FOREX PAIRS TO TRADE
Not all Forex pairs are suitable for trading. We need to find liquid markets that have enough price movement to make a trade worthwhile.
The following pairs are the most universally traded, are the most liquid pairs, and the only ones that I would even consider trading. They are not listed in any particular order:
GBP/USD – British Pound Sterling/US$ EUR/USD – Euro/US$ USD/JPY – US$/Japan Yen USD/CAD – US$/Canadian Dollar USD/CHF – US$/Swiss Franc
In fact, to further ease your Forex trading, you should limit your trading to the two most liquid and widely traded pairs: GBP/USD EUR/USD Following this recommendation alone will really reduce demands on your trading time without giving away any profit potential.
STEP 5 BROKER ACCOUNT OPENING
To open a Forex account, you simply fill out a broker application and provide the necessary ID. The application likely will include a margin agreement stating that the broker will be allowed to intervene in any trade which appears to be risky.
This agreement is made to protect the broker’s margin interests since trading is done with the broker’s funds. However, it is strongly advised that you establish an account and fund it 100% and never use any margin provisions.
STEP 6 HAVE TWO ACCOUNTS
For new Forex traders it is highly recommended to have two accounts; One as a demo account and another as your “live account. Use the demo account to learn the trading game and to test the best alternative market moves. Also, use a demo account to follow your “live” account trades so you can determine if you need to make any corrections or trade changes.
STEP 7 CHART REVIEWS
This is critical. always review the One Hour – Four Hour – and Daily charts that pertain to your specific trade setup to determine actual status and any movements. Some traders also trade at 15 and 30 minute time intervals. However, this requires some experience and is not recommended for new Forex traders.
STEP 8 FINALLY UNCOVER THE BIG MONEY OPPORTUNITIES WITH FOREX TRADING
In most cases, Forex markets are just like any other liquid markets such as stocks, bonds, or commodities. However, there is one major difference with the Forex markets. That is the trends are stronger and longer lasting and occur much more frequently than do trends in other markets.
It is quite common for a Forex pair to begin a new trend that will last for many weeks and sometimes months. I refer to these events as the “Forex Major Event”. When you combine these Major Event trends along with the ability to leverage a small account, this is where you can find the favorable opportunities trading Forex. Major Event trends have been known to often give 300 to 800 pip ranges. Now, those are really and truly BIG money opportunities.
In conclusion, Forex Trading success requires an understanding of: trading strategy, trends, account size to use, best Forex pairs to trade, etc. To ensure your trading success it is critical that you stay with a trading plan and treat it as a business. You need to always track your results and make necessary changes and improvements as you progress.
It should be noted that several additional and important Forex issues have been finally uncovered, however, they could not be covered in the short space given here.
By: Dr Tom Moyer
Jul
03
Filed Under (Trading Strategies) by admin
I will like to know the most important forex tips as a beginner must know first before trading the forex market.
Jun
17
Filed Under (Currency Trading) by admin
Forex Day Trading can be very lucrative. No matter what type of market you chose to day trade you must know the “personality” of the market you are trading. Every market has its own characteristics and it is important to know what they are before attempting to profit from it. The forex market is no different. In this article we will go over very important general day trading principles/rules and then we will see what a day trader has to recognize when specifically day trading the forex market.
As the term implies, day traders are concerned with what happens in the market today. Not tomorrow, not next week and not next month, but today. Forex day trader’s job is to capture intraday price swings. Depending on the system or trading method employed, this can mean capturing one intraday swing or various intraday swings.
The general job of a Forex day trader is: To be disciplined.
This principle is key for any type of trading but particularly for forex day trading. If I had to name one single aspect of a day trader that can make him or her a winner or a loser it is discipline. You can have a so-so system but still make money if you are disciplined. However, you can have the best trading system in the world but if you are not disciplined I guarantee you will not be a successful trader. So, what is all this discipline everyone talks about when discussing trading? Very simple, it’s respecting and strictly following your forex trading plan, your forex trading system, your money management rules, and your commitment to the business. Being disciplined with regard to each and every one of these components is essential for your success.
It is so easy to deviate from your trading plan, the rules of your forex trading system or any of the above mentioned components, especially when day trading. Why? Two reasons. First, because the trader is trading very frequent and does not have time to cool down, think, and evaluate. Second, because reality is replaced by hope. Your trading system rules (reality) say: “get out of the trade” hope says “hang in there, maybe it will still be profitable”. Your money management rules (reality) say “risk only 2% of your account on this trade” hope says “since I lost on the last trade I will risk 4% on this next one so I can make up for the loser and also be profitable”. Your trading plan (reality) says “trade each day 4 hours, give yourself Wednesday or Thursday a vacation to rest” hope says “Since I am not doing very well now I don”t need this rest day, and I will also trade 7 hours per day to make up”. I know (not hope!) you now understand the point!
To control risk:
One of the most important jobs as a day trader is to control your risk exposure. Sure, controlling risk is a concept you must use in any type of trading; however in day trading you must look at this issue from a different angle. Since your job is to capture various price swings during the day naturally your profit objectives will be much smaller then of a swing trader (who places a single trade aiming for a much larger profit objective). So, when placing several trades during the day it can be easy to “drift” away from your pre-determined stop loses. A common (very common actually!) day traders thought is “if I extend my stop loss just a bit I hope the market will turn around”! Hope is one of the trader’s biggest enemies. These little extensions of stop losses add up and suddenly without noticing you are losing more dollars per trade than planed making your risk/reward ratio turn against you.
To focus on the appropriate time frame:
As a day trader your primary concern is to catch intraday swings. Your trades start and finish the same day. Your world is the day you are trading in. You don’t care what will happen in the market tomorrow or the day after tomorrow. Your objective when trading is focusing on the appropriate time frame chart. My opinion is that day trading should be done on a 1, 5 or 10 minute bar chart. Remember, you are looking to capture several fast and short moves during the day and hence you must focus on the charts that best illustrate events as they happen in a short period of time.
However, the fact that you are day trading on a 1,5 or 10 minute bar chart does not mean you cant use a larger time frame chart for the purpose of analysis. This however, is very subjective and depends very much on the traders’ strategies and methods of trading. As an example, many day traders would look at one hour bar charts in order to have a view of how the market has been behaving in the last week. Is it moving sideways (and so maybe I should only place trades between support and resistance areas)? Is it trending (and so maybe I should only be looking at placing trades in the direction of the higher time frame trend)? Are there any major support and/or resistance levels I should be aware of (areas where I should refrain from placing trades since it is uncertain how the market will react when reaching them)? Did the market brake out of a congestion area?
Again, it is very subjective. Some day traders believe that with proper larger time frame analysis they can select better their day trades. My personal opinion is that the more you analyze the more conflicts you will have and the more uncertainties will appear (especially if you are new to trading). I like making things simple and I found it very useful when trading (proof of this is that all of the trading systems I use are 100% mechanical). Don’t get me wrong, this is not to say that larger time frames should not be used at all for analysis purposes. But, try to keep it simple and if you see that looking at larger time frame charts interferes with your correct decision process when placing day trades then simply stop.
To trade volatile and liquid markets:
Since your job as a forex day trader is to capture intraday swings it is crucial that the market you are trading has enough movement to allow you to do this. It is also important that the market you are trading has enough liquidity so that order fills do not suffer from excessive slippage. You have to select a market that it’s volatility is permanent and not a temporary occurrence. Since you are basing your trading method on catching intraday price swings you have to know that you are trading in the right place. As a day trader volatility is your allay and you have to know that you can count on it every single day (or at least 90% of the days). Liquid markets will provide you with good order fills. As a day trader this is very important since you are aiming at smaller profit objectives and hence larger slippage will eat away more of your profits. When trading several times a day this adds up and can be the difference between success and failure.
As a forex day trader you have to apply all the above rules and principles plus other criteria that are unique to the forex market.
Time of day trading:
The forex market is a 24 hour market. Never stops except on weekends. Within this 24 hour period different currencies behave in different manners. As a forex day trader it is very important to know the “personality” of the currency pair you are trading. For example, the GBP/USD is more volatile in early to mid European session then any other liquid pair. For a day trader trading in these hours it would be wise to take advantage of the price swings the GBP/USD pair offers instead of trading some other currency pair that constantly shows no movement. The USD/CAD pair is “silent” in the early to mid European session but starts to have more price movement toward the start of the US session. Every time Non Farm Payroll is released most if not all currency pairs have a very small price range up to release time. As a day trader it wouldn’t be wise to trade during these pre-announcement hours with strategies that are based on breakouts. It would probably be smarter to use strategies that are based on range support and resistance.
Spread and liquidity:
Forex brokers don’t charge you a commission for every trade you make (at least most forex brokers). Instead, they make their profit on the bid/ask spread which is measured in pips. As a forex day trader you are aiming at capturing small price swings sometimes several time per day. Also, your profit objectives are obviously much smaller than the swing trader’s profit objectives. All this means one thing: every pip counts. You cannot afford to trade currency pairs with large spreads; if you do your profit will get eaten up to a point where you will not be trading with an adequate risk/reward ratio. Forex day trading must be done with liquid pairs. Most forex brokers will provide you with a very narrow spread for the most liquid currency pairs. As an example, many brokers are now offering a 2 pip spread for EUR/USD and USD/JPY and a 3 pip spread for USD/CHF and GBP/USD. These are the most liquid pairs and the ones a day trader should focus on.
Specific news announcements:
Currency rates are affected by rumors, news, economic indicators and government reports. As a forex day trader you must always be aware of what economic reports are scheduled on the day you are trading and at what time. Why? Simply because many of these reports can have a strong momentary impact on the market once they hit the news wires. This impact can be of 10 pips or 100 pips depending on the report and it’s difference from the market consensus. The most important and impacting economic indicators and government reports are issued by the US government. They affect every USD/X or X/USD currency pair. Again, always know what are the release times and the importance of the economic report. For example, suppose you are in a EUR/USD trade at 8:25 a.m. You know that an economic report is scheduled for release at 8:30 a.m. You might consider either exiting the trade before the release (in order to avoid unnecessary speculation as to what impact the report will have on the market) or entering your profit objective and stop loss into your deal station (for risk exposure reasons).
Volatility of currency pairs:
As a forex day trader volatility is you friend, a friend you cannot afford to trade without. In it’s basic definition, volatility is simply the amount of price change with relation to time. Volatile currency pairs have various price swings (price changes) during a small period of time (one day). These price swings are what a day trader lives on. In the forex market volatility many times comes hand in hand with liquidity. The most liquid currency pairs are the ones that are the most volatile. The big 4: EUR/USD, GBP/USD, USD/JPY and USD/CHF are the most liquid pairs that provide the best volatility and hence opportunity for the forex day trader. Within these four pairs, the GBP/USD is the most volatile. Although it’s not the most liquid (the EUR/USD is), but it’s the most volatility. This pair, traded with the right forex broker (one that provides a 3 pip spread) can present many profitable opportunities for the astute day trader.
In conclusion, the forex day trader has to be prepared not only with the basic day trading rules, skills and principles. His job is to incorporate into his trading the characteristics and uniqueness of the forex market. Remember, every currency pair might present different opportunities and it is your job to always focus on the ones that best fit the purpose and objectives of forex day trading.
I hope to have contributed to your forex trading education and I thank you for taking the time to read this article.
By: Justin Owen
As the term implies, day traders are concerned with what happens in the market today. Not tomorrow, not next week and not next month, but today. Forex day trader’s job is to capture intraday price swings. Depending on the system or trading method employed, this can mean capturing one intraday swing or various intraday swings.
The general job of a Forex day trader is: To be disciplined.
This principle is key for any type of trading but particularly for forex day trading. If I had to name one single aspect of a day trader that can make him or her a winner or a loser it is discipline. You can have a so-so system but still make money if you are disciplined. However, you can have the best trading system in the world but if you are not disciplined I guarantee you will not be a successful trader. So, what is all this discipline everyone talks about when discussing trading? Very simple, it’s respecting and strictly following your forex trading plan, your forex trading system, your money management rules, and your commitment to the business. Being disciplined with regard to each and every one of these components is essential for your success.
It is so easy to deviate from your trading plan, the rules of your forex trading system or any of the above mentioned components, especially when day trading. Why? Two reasons. First, because the trader is trading very frequent and does not have time to cool down, think, and evaluate. Second, because reality is replaced by hope. Your trading system rules (reality) say: “get out of the trade” hope says “hang in there, maybe it will still be profitable”. Your money management rules (reality) say “risk only 2% of your account on this trade” hope says “since I lost on the last trade I will risk 4% on this next one so I can make up for the loser and also be profitable”. Your trading plan (reality) says “trade each day 4 hours, give yourself Wednesday or Thursday a vacation to rest” hope says “Since I am not doing very well now I don”t need this rest day, and I will also trade 7 hours per day to make up”. I know (not hope!) you now understand the point!
To control risk:
One of the most important jobs as a day trader is to control your risk exposure. Sure, controlling risk is a concept you must use in any type of trading; however in day trading you must look at this issue from a different angle. Since your job is to capture various price swings during the day naturally your profit objectives will be much smaller then of a swing trader (who places a single trade aiming for a much larger profit objective). So, when placing several trades during the day it can be easy to “drift” away from your pre-determined stop loses. A common (very common actually!) day traders thought is “if I extend my stop loss just a bit I hope the market will turn around”! Hope is one of the trader’s biggest enemies. These little extensions of stop losses add up and suddenly without noticing you are losing more dollars per trade than planed making your risk/reward ratio turn against you.
To focus on the appropriate time frame:
As a day trader your primary concern is to catch intraday swings. Your trades start and finish the same day. Your world is the day you are trading in. You don’t care what will happen in the market tomorrow or the day after tomorrow. Your objective when trading is focusing on the appropriate time frame chart. My opinion is that day trading should be done on a 1, 5 or 10 minute bar chart. Remember, you are looking to capture several fast and short moves during the day and hence you must focus on the charts that best illustrate events as they happen in a short period of time.
However, the fact that you are day trading on a 1,5 or 10 minute bar chart does not mean you cant use a larger time frame chart for the purpose of analysis. This however, is very subjective and depends very much on the traders’ strategies and methods of trading. As an example, many day traders would look at one hour bar charts in order to have a view of how the market has been behaving in the last week. Is it moving sideways (and so maybe I should only place trades between support and resistance areas)? Is it trending (and so maybe I should only be looking at placing trades in the direction of the higher time frame trend)? Are there any major support and/or resistance levels I should be aware of (areas where I should refrain from placing trades since it is uncertain how the market will react when reaching them)? Did the market brake out of a congestion area?
Again, it is very subjective. Some day traders believe that with proper larger time frame analysis they can select better their day trades. My personal opinion is that the more you analyze the more conflicts you will have and the more uncertainties will appear (especially if you are new to trading). I like making things simple and I found it very useful when trading (proof of this is that all of the trading systems I use are 100% mechanical). Don’t get me wrong, this is not to say that larger time frames should not be used at all for analysis purposes. But, try to keep it simple and if you see that looking at larger time frame charts interferes with your correct decision process when placing day trades then simply stop.
To trade volatile and liquid markets:
Since your job as a forex day trader is to capture intraday swings it is crucial that the market you are trading has enough movement to allow you to do this. It is also important that the market you are trading has enough liquidity so that order fills do not suffer from excessive slippage. You have to select a market that it’s volatility is permanent and not a temporary occurrence. Since you are basing your trading method on catching intraday price swings you have to know that you are trading in the right place. As a day trader volatility is your allay and you have to know that you can count on it every single day (or at least 90% of the days). Liquid markets will provide you with good order fills. As a day trader this is very important since you are aiming at smaller profit objectives and hence larger slippage will eat away more of your profits. When trading several times a day this adds up and can be the difference between success and failure.
As a forex day trader you have to apply all the above rules and principles plus other criteria that are unique to the forex market.
Time of day trading:
The forex market is a 24 hour market. Never stops except on weekends. Within this 24 hour period different currencies behave in different manners. As a forex day trader it is very important to know the “personality” of the currency pair you are trading. For example, the GBP/USD is more volatile in early to mid European session then any other liquid pair. For a day trader trading in these hours it would be wise to take advantage of the price swings the GBP/USD pair offers instead of trading some other currency pair that constantly shows no movement. The USD/CAD pair is “silent” in the early to mid European session but starts to have more price movement toward the start of the US session. Every time Non Farm Payroll is released most if not all currency pairs have a very small price range up to release time. As a day trader it wouldn’t be wise to trade during these pre-announcement hours with strategies that are based on breakouts. It would probably be smarter to use strategies that are based on range support and resistance.
Spread and liquidity:
Forex brokers don’t charge you a commission for every trade you make (at least most forex brokers). Instead, they make their profit on the bid/ask spread which is measured in pips. As a forex day trader you are aiming at capturing small price swings sometimes several time per day. Also, your profit objectives are obviously much smaller than the swing trader’s profit objectives. All this means one thing: every pip counts. You cannot afford to trade currency pairs with large spreads; if you do your profit will get eaten up to a point where you will not be trading with an adequate risk/reward ratio. Forex day trading must be done with liquid pairs. Most forex brokers will provide you with a very narrow spread for the most liquid currency pairs. As an example, many brokers are now offering a 2 pip spread for EUR/USD and USD/JPY and a 3 pip spread for USD/CHF and GBP/USD. These are the most liquid pairs and the ones a day trader should focus on.
Specific news announcements:
Currency rates are affected by rumors, news, economic indicators and government reports. As a forex day trader you must always be aware of what economic reports are scheduled on the day you are trading and at what time. Why? Simply because many of these reports can have a strong momentary impact on the market once they hit the news wires. This impact can be of 10 pips or 100 pips depending on the report and it’s difference from the market consensus. The most important and impacting economic indicators and government reports are issued by the US government. They affect every USD/X or X/USD currency pair. Again, always know what are the release times and the importance of the economic report. For example, suppose you are in a EUR/USD trade at 8:25 a.m. You know that an economic report is scheduled for release at 8:30 a.m. You might consider either exiting the trade before the release (in order to avoid unnecessary speculation as to what impact the report will have on the market) or entering your profit objective and stop loss into your deal station (for risk exposure reasons).
Volatility of currency pairs:
As a forex day trader volatility is you friend, a friend you cannot afford to trade without. In it’s basic definition, volatility is simply the amount of price change with relation to time. Volatile currency pairs have various price swings (price changes) during a small period of time (one day). These price swings are what a day trader lives on. In the forex market volatility many times comes hand in hand with liquidity. The most liquid currency pairs are the ones that are the most volatile. The big 4: EUR/USD, GBP/USD, USD/JPY and USD/CHF are the most liquid pairs that provide the best volatility and hence opportunity for the forex day trader. Within these four pairs, the GBP/USD is the most volatile. Although it’s not the most liquid (the EUR/USD is), but it’s the most volatility. This pair, traded with the right forex broker (one that provides a 3 pip spread) can present many profitable opportunities for the astute day trader.
In conclusion, the forex day trader has to be prepared not only with the basic day trading rules, skills and principles. His job is to incorporate into his trading the characteristics and uniqueness of the forex market. Remember, every currency pair might present different opportunities and it is your job to always focus on the ones that best fit the purpose and objectives of forex day trading.
I hope to have contributed to your forex trading education and I thank you for taking the time to read this article.
By: Justin Owen
Apr
15
Filed Under (Trading USD-EUR) by admin
Trading in the worlds largest and the most liquid financial market is one of the best ways to earn money. Here, if you know how, when, and what to trade, you can be sure that you can earn huge amounts of profit. It is a fact that a lot of people who traded in this financial market became successful and became very rich almost overnight.
As a trader, you would want to grab the opportunity to earn lots of money and of course, start a trading career in Forex. The Forex market, as mentioned before, is the largest and the most liquid financial market in the world. Unlike the stock market and other financial market, Forex has no centralized location as it operates 24 hours a day at different locations around the world. Trades in this financial market are done through an electronic network.
In the past, because of the high financial requirements, Forex was only limited to large multinational corporations and financial institutions, such as banks. However, because of the advancement of the communications technology and also the existence of high speed internet, Forex in the late 90s is now available for everyone who is interested in trading in the Forex market.
Forex trading, for a beginner trader, is simply the buying and selling of different currencies of the world. This may seem simple enough for everyone, but you should also consider that a lot of inexperienced traders and some experienced traders have suffered huge financial losses in Forex.
You should always keep in mind that aside from the fact that Forex can give you a great money-making potential, Forex also has equal risks. Therefore, before you enter this market and trade, you should first consider a few things in order for you be successful in this money making venture.
First of all, you have to know how to trade currencies. In Forex trading, all you need is a personal computer with an active internet connection, a funded Forex account and a Forex trading system. There are numerous websites that offer Forex trading. In order to start trading, you have to open and fund an account first with your chosen website. After that, you can now start trading in the most liquid market in the world.
You need to have a fast internet connection in order to keep up with the updates and price movements and prevent slippages from happening. Another thing you have to consider is that as much as possible, you should register in a Forex website that offer dummy accounts so that you can practice your skills and strategies in Forex trading.
Now that you know how to trade in the Forex market, the next thing you need to know is what to trade. The Forex market involved different currencies from all over the world. It is also traded in forms of currency pairs. Here are the different currency pairs that you should consider trading in the Forex market:
? EUR/USD
? USD/JPY
? GBP/USD
? USD/CHF
? AUD/USD
? USD/CAD
? NZD/USD
? EUR/GBP
? EUR/JPY
? GBP/JPY
? CHF/JPY
? GBP/CHF
? EUR/AUD
These are the most commonly traded currency pairs in the Forex market. It is up to you to determine which currency pair you want to trade depending on market conditions. If you do it right, you can be sure that you can earn a substantial amount of income.
The next and last thing you should consider is when you have to trade in the Forex market. Since the Forex market is open 24 hours a day, you can trade whenever you like. And, since it is the most liquid, you can get out whenever you like. It is just a matter of knowing if the market condition is profitable or if it is falling.
Forex traders are mostly speculators who try to predict which currency is going to increase in value and which currency will decrease in value. Speculators use Forex charts to spot a trend and determine when a particular currency will increase or decrease in value.
Now that you know how to trade in the Forex market, you can now open a funded account and start trading currencies.
Always remember that in all trades done in the financial market, you should also expect to suffer from losses. You should be prepared to deal with it and accept it. This is why you need a substantial amount of money to trade in Forex.
By: Gerald Mason
As a trader, you would want to grab the opportunity to earn lots of money and of course, start a trading career in Forex. The Forex market, as mentioned before, is the largest and the most liquid financial market in the world. Unlike the stock market and other financial market, Forex has no centralized location as it operates 24 hours a day at different locations around the world. Trades in this financial market are done through an electronic network.
In the past, because of the high financial requirements, Forex was only limited to large multinational corporations and financial institutions, such as banks. However, because of the advancement of the communications technology and also the existence of high speed internet, Forex in the late 90s is now available for everyone who is interested in trading in the Forex market.
Forex trading, for a beginner trader, is simply the buying and selling of different currencies of the world. This may seem simple enough for everyone, but you should also consider that a lot of inexperienced traders and some experienced traders have suffered huge financial losses in Forex.
You should always keep in mind that aside from the fact that Forex can give you a great money-making potential, Forex also has equal risks. Therefore, before you enter this market and trade, you should first consider a few things in order for you be successful in this money making venture.
First of all, you have to know how to trade currencies. In Forex trading, all you need is a personal computer with an active internet connection, a funded Forex account and a Forex trading system. There are numerous websites that offer Forex trading. In order to start trading, you have to open and fund an account first with your chosen website. After that, you can now start trading in the most liquid market in the world.
You need to have a fast internet connection in order to keep up with the updates and price movements and prevent slippages from happening. Another thing you have to consider is that as much as possible, you should register in a Forex website that offer dummy accounts so that you can practice your skills and strategies in Forex trading.
Now that you know how to trade in the Forex market, the next thing you need to know is what to trade. The Forex market involved different currencies from all over the world. It is also traded in forms of currency pairs. Here are the different currency pairs that you should consider trading in the Forex market:
? EUR/USD
? USD/JPY
? GBP/USD
? USD/CHF
? AUD/USD
? USD/CAD
? NZD/USD
? EUR/GBP
? EUR/JPY
? GBP/JPY
? CHF/JPY
? GBP/CHF
? EUR/AUD
These are the most commonly traded currency pairs in the Forex market. It is up to you to determine which currency pair you want to trade depending on market conditions. If you do it right, you can be sure that you can earn a substantial amount of income.
The next and last thing you should consider is when you have to trade in the Forex market. Since the Forex market is open 24 hours a day, you can trade whenever you like. And, since it is the most liquid, you can get out whenever you like. It is just a matter of knowing if the market condition is profitable or if it is falling.
Forex traders are mostly speculators who try to predict which currency is going to increase in value and which currency will decrease in value. Speculators use Forex charts to spot a trend and determine when a particular currency will increase or decrease in value.
Now that you know how to trade in the Forex market, you can now open a funded account and start trading currencies.
Always remember that in all trades done in the financial market, you should also expect to suffer from losses. You should be prepared to deal with it and accept it. This is why you need a substantial amount of money to trade in Forex.
By: Gerald Mason
