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Forex Trading Demystified

Forex Trading Demystified

Forex involves the trading of currencies. It is the largest financial market in the world and has an estimated daily turnover of 1.9 trillion dollars. This turnover is larger than all the worlds stock market on any given day.

The forex market does not have a fixed exchange. The forex market is considered an over-the-counter (OTC) market. The forex market is completely electronic and trades are executed over the phone or on the Internet. Until 10 years ago the forex market was the preserve of large financial institutions. Now an ever-increasing amount of individual traders thanks to the advent of the Internet and an increasing amount of online forex brokers are trading forex.

Currencies are always traded in pairs. A typical pair would be EUR/USD (Euro over US dollars). The first currency is the base. The second currency is the counter currency. The pair can be viewed, as the amount of the secondary currency that is needed to buy 1 unit of the first currency. If you were to buy the above pair you would buy Euro and simultaneously selling US dollars. If the pair were sold the reverse would happen you would sell the Euro and buy the US dollar. This might sound confusing but simply think of the pair as one item and you are buying or selling one item. If you think the Euro will go up against the US dollar you buy the EUR/USD pair. If you think the EUR will decrease against the US dollar you sell the EUR/USD pair.

When you see forex quotes you will see two numbers. If we use the EUR/USD as an example you might see 1.2350/1.2355 the first number 1.2350 is the bid price and is the price traders are prepared to buy euros against the US dollar. The second number 1.2355 is the offer price and is the price traders are prepared to sell the EURO against the US dollar. The difference between the bid and the offer price is the called the spread. The spread for the major currencies is usually 3 to 5 pips (explained later).

The most common increment of currencies is the pip. If the EUR/USD moves from 1.2350 to 1.2351 that is one pip. A pip is the last decimal point of quotation. Most currencies quoted to 4 decimal points. The exception is the Yen, which is quoted to 2 decimal points eg 139.41. The term pip is just forex lingo so if a forex trader says the EURO has gone up 20 pips against the US dollar add 20 points to decimal part of EUR/USD pair.

Forex is traditionally traded in lots also referred to as contracts. The standard size for a lot is $100,000. In the last few a mini lot size of 10,000 dollars has been introduced and this has become increasing popular. Forex trading is leveraged with most forex brokers offering 1% margins. This means you can control one standard lot of $100000 with $1000. Typically you would need a minimum of $2500 to open a standard size forex account.

A mini account can be opened with $300 with most forex brokers. To trade a one mini lot you need a margin of $100, which in turn controls $10000. If the currency goes up 1% and if you traded one mini lot of $10000 you would make $100 dollars or 100% of your original margin. Forex trading is a very lucrative market to get into and it is suggested that traders new to forex trading trade a mini account for an extended amount of time. Trading a mini account is a low cost entry to the forex market, as only $300 is required to open an account. You can still make money while you become more experienced in forex trading. You can trade one mini lot until you have made your first $100 dollars then start trading 2 mini lots. As you gain more experience you can trade standard sized lots.

Forex trading is becoming increasing popular with traders of other financial products. It can be traded in amounts a lot smaller than other financial products, which makes learning forex trading safer than other markets. Forex trading can be a very lucrative market, which no trader can dismiss.

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A Disciplined and Organized Approach to Trading in the Stock Market

A Disciplined and Organized Approach to Trading in the Stock Market

A Winning Approach to Trading in the Stock Market

Many traders lose simply out of ignorance. They base their trades on hunches, news, or tips from friends, and do not define specific risk and profit objectives before placing trades.

Others have the merit of educating themselves but fall victims of their emotions. They hold on to losing positions hoping they will turn into winners and sell winners by fear of losing a small gain.

They overtrade to fulfill a need for action or by fear of missing out.

The consistent winners follow a winning approach:

They have a strategy to enter and exit trades
They use good money management
They take consistent actions, they follow a trading plan
They keep good records so they can review their actions
They avoid overtrading
They have a winning attitude

You need to a strategy to put the odds in your favor for each trade you take. Your strategy should be as objective as possible and include the following elements:

Entry: conditions required before you can enter a trade – may include technical analysis, fundamental analysis, or both.

Initial stop loss: price at which you will close the entire position if it does not go in your favor. The risk per share is the difference between the entry price and the initial stop

Initial price objective: price at which you will take some or all profits if the trade goes in your favor.

Trade management:

A set of rules that dictates your actions while a trade is opened. It may include trailing stops, closing position, etc;

For every action you take, the reason should be clearly described in your strategy.

Money management rules to keep losses small.

The goal of money management is to ensure your survival by avoiding risks that could take you out of business. Your money management rules should include the following: Maximum amount at risk for each trade. The different between your entry price and your initial stop loss is your risk per share. Your maximum amount at risk for each trade determines the share size.

Maximum amount at risk for all your opened positions.

Maximum daily and weekly amount lost before you stop trading & dash; avoid trying to trade your way out of a hole after a loosing streaks. During your learning phase, your goal should be to survive, not to make money. Start with low limits and raise them as you become a consistent winner otherwise you will simply go broke faster.

Good record keeping

Although the process of gaining experience cannot be rushed, it can be made much more efficient by keeping good records of your actions.

Good records will allow you to: Review your actions at the end of each day to make sure you followed you strategy, not your emotions.
Learn from your losses they cost you money, make sure you get the education in return.

You should also keep a journal of your observations.

A trading plan to keep emotions out of your decisions. During trading hours, emotions will turn smart people into idiots. Therefore you have to avoid having to make decisions during those hours. This requires a detailed trading plan that includes your strategy and your money management rules.

For every action you take during trading hours, the reason should not be greed or fear. The reason should be because it is in the plan. With a good plan, your task becomes one of patience and discipline.

You have to follow the plan without exception. Any valid reason for an exception – for example, correcting an oversight – should become part of the plan.

Overtrading

Sometimes the best thing to do is to do nothing. Not trading on those bad days is key to becoming a consistent winner; in some situations it is very tempting to overtrade: If you trade to fulfill a need for action, to relieve boredom.

If you find the proper setup but wait. If you fear you are missing out on a great trade or on a great market. If you want to make up for losses (revenge)

If you trade to feel like you are working instead of sitting around. Trading involves a lot of work other than the actual buying and selling.

You should not trade under the following conditions:

You are not following my trading plan
You have reached your daily or weekly maximum loss
You are sick or very tired
You are very emotional (upset, pressured to make money, self- esteem destroyed)
You are using new tools you are not completely familiar with
You need time to work on your trading plan

A winning attitude.

Losing traders look for a hang on hope, and avoid accepting small losses. Their trading is based on emotions. You must treat trading as a probability game in which you need to know what is going to happen next in order to make money. All you need to know is that the odds are in your favor before you put a trade.

If you believe in your edge, which is you believe that the odds in your favor for each trade you enter, then you should have no expectation other than something will happen.

Our attitude will have a direct influence on your trading results: Take responsibility for all your actions blame the market or world events.
Trade to trade well and for the love of trading, not to trade often and not for the money. The money will come as a result of trading well.

Reach your own decisions and follow them.

Never think that taking money from the market is easy and never assume that you know enough.

Have no particular expectation when you place a trade because you know that anything can happen.

Try to guess the future trading is a game of probabilities.

Use your head and stay calm get excited or depressed.

Handle trading as a serious intellectual pursuit.

Count how much money you have made or lost while you are in a trade – focus on trading well.

Trading Framework was designed to help you build those crucial elements into your trading.
www.tradingframework.com” target=”_blank”www.tradingframework.com

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