Category — Forex

The winning currency trader must be cold, calculating, and logical. It is absolutely necessary to control your emotions, rather than let them interfere with your trading decisions. While it is true that fear and greed are major factors in market behavior, there are other emotions, such as anger and disappointment, that influence our trading decisions.

Because emotions can interfere with discipline and sound decision-making, it is necessary for traders to take a methodical approach to their trading. By trading a method it is possible to gain an awareness of market behavior, and in that way learn to master and control our emotions.

Many traders become fearful when they perceive that a loss is imminent. When a loss is clearly going to happen, it is useful to close out a trade as soon as possible. But many times, traders tend to follow the crowd. They see other traders selling or buying, and so they sell or buy rather than following a proven set of rules.  

The winning currency trader learns to take advantage of fear. He or she learns to stick with what they know works in the long run.

One reason to use a proven method is to somewhat mechanize both fear and greed. It is reasonable to be fearful when your money is on the line. That’s why winning traders protect themselves by trading with a detailed trading plan and a known scheme of risk management. Methodical trading allows you to minimize risk, and trade more effortlessly and with less fear, because you have the courage of conviction in knowing that statistically you will win overall.

Many traders have no idea of how to create a trading plan.  That is why Trading Educators offers you a chance to earn while you learn.  By trading a proven method, you see how a plan is created and have the underpinning of successful history to back you up. At some point you will feel sufficiently confident to create your own plan. Let’s face it, a method is nothing more than a trading plan with statistics to back up and support its validity.

At Trading Educators we know that emotions are a natural part of trading. As much as traders painstakingly plan their trades, the market doesn’t always meet their expectations. The same is true of a trading method. That is why we always provide full details of every method, so that traders, at their discretion, are able to adapt and make changes to a method should they choose to do so. As with any plan or method, it is more than likely that the market will sometimes fail to meet our expectations rather than behave in accordance with our plans. There is no holy grail of trading.  If you accept this fact and take precautions to work around it, you’ll be able to minimize the influence of emotions. You’ll trade more effortlessly, creatively, and profitably.

Have you asked yourself why you are trading forex? Why not invest in stocks? Why not in bonds, or mutual funds? What is the opportunity cost of not trading forex?

Can you emotionally and financially handle potentially losing all of your risk capital?

What are your goals for trading forex? Are those goals realistic? How will you achieve those goals?

Who will help you attain your goals, and how much risk capital will you use?

There are many other questions you can ask yourself, but do you know what? Very few who enter into the world of trading ever ask these questions. The questions I posed above are just a few of the essentials. Just as with any other venture, you must know what you are looking for. Once you’ve defined what that is, you have to determine how best to achieve it.

Trading forex can be a most rewarding and exciting experience for those who are prepared. For the unprepared, it can be hell, becoming increasingly painful as you lose more and more money; and the unprepared will never really know why!

Trading can be exasperating. You can be in a trade that would have been profitable had you held on for another 5 minutes. You can be the last one into a “sure thing” trade, only to see it fall like a rock.

A carefully considered trading plan may be no more than a couple of pages long, probably less, but it will be your most important road map to success.

A well thought-out plan will reveal how much you are willing to lose on a trade. It will tell you when to enter a trade, when to exit a trade, and show you how to protect your profits.

It’s easy to get into trading forex. Actually, maybe it’s too easy. If you have the money, almost any brokerage firm will open an account for you. However, few brokers will sit down with you to help you develop a trading plan. Even if they would, it may not be a good idea. Only you can make the decisions and have the knowledge to develop the plan that is right for you.

Here are some things you might want to think about:

1. Are you psychologically, emotionally, and financially suited for trading in the forex market?

2. Have you truly set forth your goals and objectives, realizing that objectives are achievement steps towards your goal?

3. What are your limitations—physically, financially, and tradable hours?

4. Knowing that you must keep a trading journal, what items will you keep track of?

5. Which currency pairs will you trade?

6. How will you do your analysis?

7. What, if any, trading system, method, or setups will you use?

8. Do you have solid money, trade, and personal management rules?

9. What, if any, trading strategies will you use, and have you developed the tactics to carry out those strategies?

10. Do you know every kind of order available to you, and how they will affect the strategy you plan on using?

11. How will you find a good broker, and what exactly do you expect of that broker?

12. Will you use a broker who is registered with the NFA and the CFTC?

Now you can work on developing that trading plan!

Forex at the Market

The foundation of the forex industry is leverage. A few years ago we saw how LTCM used $4 billion to leverage over $1 trillion dollars in assets. George Soros used forex leverage to earn $1 billion dollars against the British pound.

On the other hand, this same forex leverage drove LTCM to the brink of bankruptcy and nearly caused worldwide financial meltdown. We also saw George Soros hit with a $2 billion dollar loss in the Russian ruble. When trading forex, leverage is not to be taken lightly.

Leverage is defined as “the use of investment capital in such a way that a relatively small amount of money enables a trader to control a relatively large value”. In forex trading there are many instances when you can have leverage as high as 100:1, sometimes even higher. Putting up a few hundred dollars to have a position worth hundreds of thousands can definitely be worthwhile.

An important fact to remember is that, in forex, the money used to leverage a position does not have any intrinsic value. The margin is not a deposit on the actual position. Instead, it is considered “earnest” money, or a “good-faith” deposit .

In forex, the margin is a flat rate that helps put you in the game. This type of leverage can be terrifying for speculators.

Typical Over the Counter (OTC) leverage rules might look like this: You must put up a minimum margin of $1,000 per unit for accounts less than $25,000. Traders must maintain a balance $1,000 or 1% for each open unit.

Such an FX policy permits you to trade foreign currencies on a highly leveraged basis—up to 100 times your investment. An investment of $1,000 would enable you to trade up to $100,000 of a particular currency. A 50% loss in the value of the account, also known as a “draw down” in usable margin, will generate a margin call.

Typically, a speculator new to forex trading will initiate his first trade by getting as many contracts as possible, thereby over-leveraging his account. The greed demon has set in. It is no longer acceptable to get just $7 for every one pip move, it’s better to get $70 or more for every one pip move.

Unfortunately, this behavior is not discouraged by the majority of brokerages. Instead, they fuel this greedy behavior. A broker or dealer is paid either on a commission basis or a pip spread, according to the number of contracts his client margins. So it’s more profitable for the broker or dealer, at least in the short run, for the client to get as many positions as he can afford to take on margin.

This over-leveraging does a disservice to both the client and the broker. It exposes the client to too much risk at one time, and it forces brokerage to continually get new clients to trade. As a matter of fact, it is not unusual for the first trade a new speculator makes to go against him.

Disciplined speculators know to expect that every trade they take may work against them. That being the case, the disciplined speculator paces himself by investing a little at a time until he hits upon a successful trade.

As is to be expected, even the best trading systems that exist rarely have better than a fifty-percent success rate. Therefore, you must let leverage work for you, and not allow the demon of greed convince you to abuse it.

Forex at the Market