FOREX

BASIC PRINCIPLES OF FOREX TRADING

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We feel that there are a few basic forex principles that separate successful traders from those that fail:

1. Trading is an investment not an income.

It is important to have a realistic expectation of what you can achieve through forex trading. The nature of trading is such that you may make a good return on your initial capital over an annual period, but during that period you may have a number of consecutive losing months, with only a few bumper months inbetween. Therefore, even daytraders cannot claim to make a fixed amount per month which equates to a salary. You need to have another source of income to support yourself while trading forex. NEVER borrow money to trade with.

2. You can't predict the forex markets.

The forex markets are influenced by billions of traders, economic and political events. You simply cannot predict the direction and manner in which the markets will move.

Technical and fundamental analysis does much to provide a more educated guess than a simple coin toss but it is important to realise that each of these techniques will have a large failure rate. You will lose a large percentage of the time. Sometimes you will lose on more trades than you gain on. However, it is still possible to make money under these conditions by employing sound money management forex principles.

3. Let profits ride and cut your losses

The only way to make money from forex trading (or any form of trading) is by making enough money on your winning trades to cover your losses and to gain additional profit to grow your capital. This means letting your profitable trades ride and cutting your losses early. It is harder to put into practice than it sounds as psycologically it is much easier to "marry" your losing trades in the hope that the market will turn in your favour and grabbing your profit too soon when you see your hard earned gains slipping away as the market temporarily turns against you.

4. Trade according to a tried and tested system

This is one of the most important forex principles. The only way to cut out emotion in trading and adopt a more business-like and informed approach is to use a system of rules that have been developed and tested on market data. In this way, all the trade decisions have already been made before you even enter the forex market. This is a much less time consuming and less stressful way to trade for a living.

5. Employ a sound money management strategy

In our opinion, money management is the single most important aspect of any trading system and is badly neglected by forex beginners. It enables the trader to fully utilise their capital to grow their money as fast as possible while protecting them from excessive losses and final account blow out.

6. Don't ignore the fundamentals

Fundamental economic principles drive the foreign exchange rates of the world over the long term. However, they have minimal effect over the short-term and are thus not reliable to use for daytrading decisions.

Having said that, economic announcements sometimes have a profound effect on the markets, causing movements of hundreds of pips in a matter of hours. Therefore forex beginners ignore them at their peril!

7. Don't put your faith in the expert's recommendations and comments

There are literally hundreds of forex companies providing trading signals, daily commentary and trading recommendations. While it may be useful to read some of these to get an outside opinion, it can just be information overload for newcomers to the forex market, creating indecision and stress! Believe in your system and trade accordingly.

MONEY MANAGEMENT

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Money management is concerned with the number of contracts you trade given your starting equity. It attempts to optimally utilise your capital to maximise your profits while preserving your account.

Losses versus gains

When you make a 10% loss, you need to make more than a 10% gain on your remaining capital to make up that loss and get back to your starting capital amount. This is best demonstrated using an example. If your starting capital is $10000 and you make a loss of $1000 (or 10%), your balance is down to $9000. In order to regain your starting amount of $10000, you need to make $1000 profit from a $9000 balance, i.e. a profit of 11%.

Now if you make a 50% loss, i.e. $5000 (following on from the above example), you need to make a 100% profit on your reduced balance in order to get back to your original starting capital of $10000. This demonstrates how important it is to have a money management strategy in place.

Money management strategies

There are many different money management strategies. You may create one that suits your particular system or use one of the more common methods described below:

Fixed Percentage of Capital

A very popular management tool is to use only a fixed percentage of your capital to trade with. In most cases, traders never commit more than 2% of their capital to any one trade.

Optimal Fixed Fraction (Optimal f)

This system was created by R. Vince. It uses the results of past trades to determine the optimal value for f (the amount of capital to be invested per trade) which yields the highest profit. This method tends to result in large drawdowns and relies on historical results to determine future capital usage.

The Kelly Criterion

Traders have adapted an equation, originally developed by J. Kelly during his research for AT&T Bell Laboratories, to calculate the percentage of your capital to commit per trade. The calculation is based on the number of winning and losing trades recorded by your trading system over a period of time.

Adding contracts in a trend

Another way of increasing your profit, while preserving your capital during trend trading is to add contracts as the trend develops. So, if your trading system is based on a breakout of some sort, for example the price breaks through a moving average line, the high of the previous day or a trendline, you would buy a contract. As the trend continues, you would buy more contracts at fixed intervals (say every 30 pips). By the time the trend has ended and your exit signal is invoked, you may have a number of contracts, most of which will show a profit. In this way you are not committing yourself all at once (in case of a false breakout) but you have the benefit of maximising your profit once the trend has been proven.

USEFUL LINKS

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4ValueInvestors
http://www.4valueinvestors.com

AG-Investments
http://www.ag-investments.com

Contrarian Investing Association
Beating the market - by going against the crowd!
The Contrarian Investing Association looks for strongly financed, growing companies that are undervalued by the market for the wrong reasons, believing that the market will come to appreciate their true value over time. This investing approach can also be described as Contrarian, since such stocks are purchased when most investors believe that they are unattractive.
http://www.contrarian-investing.com

Currency Trading
Forex trading guide with many articles, tips, forex brokers comparison and many more. Learn to trade like the pros with Forex Trading Plus.
http://www.forextradingplus.com

Currency Trading Directory
The comprehensive Currency Trading web directory. The online Currency Trading directory designed to help its users find the Currency Trading source, companies, products, services, and information.
http://www.currency-trading-directory.com

Daytrading Forex
Real time FOREX trading recommendations and FX Advisory Service. Day Trading forex signals. Elliott Wave Analysis, Technical analysis and Charting techniques on Foreign Exchange Currency market.
http://www.daytradingforex.com

DayTradingTheMarkets.com
The online community for day traders of stocks, options, futures, and forex.
http://www.daytradingthemarkets.com

Find-a-Broker
Advanced search engine and database that provides detailed information about online forex brokers and their services. Also features a directory of forex resources.
http://www.find-a-broker.com

Forex Trading Online
A forex trading platform with currency quotes and forex resources
http://www.forexbids.com

Forex Trading Systems
After testing 27 FOREX trading systems we reveal the best one.
http://www.forex-trading-system-review.info

Forex Training
FX Reserves offers education and information for forex, futures, and stock market.Forex Training
http://www.fxreserves.com

Forex Training Programs
Forex Training Programs - Forex Training - Site #1For Forex Training - forex training programs articles and resources
http://forextrainingprograms.com

ForexStrategy Team
Trading Together in Real Time. Forex Signals in real time for the four main currencies pairs. Forex News Agency. Live Forex Market data. Real time forex charts, live quotes, live news, live forex signals and live forex education.
http://www.forex-strategy.com

ForexPoint.com
Information for traders and investors. Forex market analysis, quotes, news, charts, information. Financial links and websites.
http://www.forexpoint.com

FOREXvision - Your guide to FOREX trading
FOREXvision.com is a FOREX Search Engine. It provides FOREX directory, tutorials, FX news, FOREX forecast and trading information for investors and currency traders.
http://www.forexvision.com

FortKnox Trading
Real-Time forecasts for major currencies, commodities and options & professional fund managers.
http://www.fortknoxtrading.com

FTD Forex.com
The Online Currency Trading Experts. For information on Forex and Foreign Currency Investing, Visit us at "FTD Forex .com" and browse through our extensive Foreign Exchange and Currency Resources.
http://www.ftdforex.com

GO Forex
An information and resources portal covering all things forex
http://www.goforex.net

Investing Online
Learn about investing online and penny stocks on our forum. It's free to use and you'll find out when great investments can be made.
http://www.pennystockpile.com

My Forex Site
Welcome to MyForexSite - Forex trading portal. Free Live Forex demo, Ultimate trading platform, latest Forex news,
analysis, forecasts, trading signals, startegies, streaming charts, tools, forum, directory and much more.
http://www.myforexsite.com

Turtle Trading Method
http://www.originalturtles.org

TRADING PSYCHOLOGY

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Trading, and currency trading in particular, is associated with a high level of risk. It is not uncommon to lose thousands of dollars in a matter of seconds. Therefore, success in trading largely depends on controlling your emotions and adopting the right attitude.

Trading is an emotional rollercoaster

It is a very natural human tendancy to want to stay in a losing trade in the hope that the market will turn in your favour and you can regain your losses to close your trade at a more financially acceptable level. Similarly, when you are making a profit it is very hard not to grab what you can get while you're up, instead of riding out the trend even if the market temporarily turns against you.

However, as our basic principles state, the only way to make money in forex trading is to let your profits ride and to cut your losses quickly. This is because there is a very narrow margin between making an overall profit and blowing your account since you will have a large number of losing trades, no matter how good your trading system is or how lucky you are. How you manage your losses and gains makes the difference between a successful and unsuccessful trader.

In our opinion, the only way to control your emotion is to trade according to a system or set of rules. Your system should be comprehensive enough to cover any eventuality arising in the markets so that you never need to make any decisions while in a trade. You simply follow a set of predetermined rules.

Chat Forums

Forex trading is a very lonely occupation as you sit behind a computer terminal all day, isolated from the world. This in itself is enough to make you feel very depressed and despondent. Subscribing to forex chat forums will help to alleviate some of the loneliness. At least then you get some insight into the lives of other traders around the world and you can get an opportunity to interact with them.

FUNDAMENTAL ANALYSIS

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What is fundamental analysis?

Fundamental analysis in forex broadly investigates how various governments' economic policies influence the currency market. This study is generally more appropriate to the longer time frame.

For the daytrader, daily economic announcements are the only significant fundamental events that could influence your trades. These announcements comprise economic figure releases and speeches by prominent people.

Summary of the important economic announcements.

Generally, announcements relating to the economy of the USA are most important. The top three market moving figure releases are:

Interest rates
Trade balance, budget and treasury budget
Employment situation

The following figures are less important but can be market movers if the figure comes in very different from what was predicted by economists:

Retail sales
Durable goods
GDP (usually the most stable figure)

How to interpret economic calenders

Economic calenders usually list a forecast of the figure (predicted by economists) and the value of the figure released the previous month. If the forecast figure is expected to be better than the previous figure then the US doller generally strengthens against other major currencies and vica versa if the figure is expected to be worse.

However, it sometimes happens that if we are currently in an environment where the US dollar is presently favoured (a trending environment), a negative figure may cause a temporary drop in the dollars value before it continues to strengthen, i.e. it reverts back to the pre-announcement trend.

Brokers trade stations and economic announcements

Brokers sometimes close their trading desk to new orders in the period directly before an important figure is due to be released in order to limit the high volume of trade which occurs at these times.

Therefore, If you wish to trade a figure release, you may need to place an order timeously and always include a stop loss as you may not be able to access the trade station if you need to close your trade.

Speeches and policy decisions

When Alan Greenspan, the Chief Banker of the United States, is expected to talk the currencies normally range within a tight range until his speech commences during which time they can move quite substantially, depending on the topic and content of his speech. Other speakers in the USA who can move the market include: Ben Bernake, John Snow and Janet Yellen.

Policy decisions such as those made at G11 meetings tend to initiate a trend in the currency market which may last a few days or weeks.

How the Oil Price impacts on the currency market

When the price of oil increases the currencies are affected negatively, especially the currencies of countries who need to import oil such as Japan and America.

The influence of geopolitical events

Geopolitical events do not generally move the currency market as much as important economic events do. However, major occurances such as September the 11^th do cause extreme moves. It is therefore necessary to always trade with a stop loss to protect your capital against such unexpected, large movements.

FOREX TRADING SYSTEMS

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Your trading should be governed by a system of rules to ensure that your participation in the markets is objective and not based on your emotions.

What should a forex trading system comprise?

A complete forex trading system should encompass all eventualities you may be faced with so that nothing needs to be decided during the trade. Therefore, a forex trading system should comprise rules governing:

What currencies to trade
Entry point
Exit point
Initial stop loss
Trailing stop loss
Take profit point
How many contracts to trade with

Contrary to popular belief, the entry criteria is probably the least most important parameter of a forex trading system. It is the money management component that is the most important aspect of any system.

Any forex trading system should be thoroughly tested using historical price data. There are a number of different software packages available which allow users to program in their particular system and backtest it automatically. This testing can then be used to optimise your trading system's parameters. This process assumes that the markets future behaviour will be similar to its past behaviour. While this may not necessarily be true as all markets are in a constant state of flux, we believe that changes will occur slowly over time, and by backtesting your forex trading system on a regular basis, you will be able to adapt your parameters to the changing market environment.

Trend vs Range Forex Trading Systems

A forex trading system may be developed for either trending or ranging markets. It is not easy to develop a system which works well in both environments.

Markets range more often than they trend. Therefore, a forex trading system optimised for use in a ranging market may seem ideal. However, with range trading your profit is limited to the size of the range, but when trading trending markets your profits are essentially uncapped. Therefore, trend trading is more lucrative although you probably have to endure more losses before you hit a bonanza run.

Which method makes more money - Scalping 10 pips or letting profits ride?

A forex trading system designed to scalp 10 to 20 pips may seem easier than one in which you are aiming to make a profit of around 100 pips or more. However, the spread and the risk-reward ratio are two factors which make scalping much less favourable.

The effect of spread is best demonstrated using an example. If you place an order to buy EUR/USD at 1.3050 (Ask price) with a take profit of 10 pips (i.e. Bid price = 1.3060), the market actually needs to move 15 pips to 1.3060 (Bid)/ 1.3065 (Ask), with a typical spread of 5 pips, before you make 10 pips profit. However, if you have a stop loss of 10 pips (i.e. Bid price = 1.3040), the market only has to move 10 pips to 1.3040 (Bid)/ 1.3045 (Ask) in order to sell you out. Therefore, even though you think your risk/ reward ratio is 1:1, you will generally lose more often than you will gain as the market needs to move only 10 pips against you before you lose your trade while a move of 15 pips in your favour is required before you take profit. This effect of the spread becomes more pronounced when your profit is small, i.e. comparable to the size of the spread.

When you allow your profits to run, risk-reward ratios of 1:2 or better can be achieved and the effect of the spread is not so pronounced.

What should you do before doing Forex trading

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1. Prepare your computer.

At Home: Find the most suitable location

Want to trade Forex in your home? First, you have to find the best place to put your computer and use good ergonomic desk and chair, you should be comfortable sitting on a chair. If you can, find a place away from public areas of your house, you can use a separate room or in your bedroom.

At Office: Check your office rules
If you want to trade Forex you should check your office rules, some companies do not allow their employees doing other work than their work, ask your IT Manager you can do Forex trade in your computer in working hours or only for lunch? 2005 - 2006 © Arisson Mercinova S.Kom.

2. Prepare your Internet connection.

Sustained access
Internet Trading Forex need a stable and fast Internet access, a dial-up Internet access is enough, but you better be faster access to the Internet, find the ISP that can provide quick and cheap access to the Internet. And the most important is that the Internet access is not interrupted or disconnected often.

Calculate your expense and your income
Calculate your internet access charges as in Forex trade may be necessary to see chart display hourly each day trying to get more income than his expense. Perhaps at the beginning of training time you get a small income than expenses.

3. Prepare you physical and mental.

You must have healthy body
In Online Forex trading you must have a healthy body suits, because once you have to trade until the end of the middle of the night because Forex Trading complete 24 hours daily rounding on each country trading time zone.

Ready to get loss 2005 - 2006 © Arisson Mercinova S.Kom.
The most important is your mental, as Forex Trading is not always profitable, once you will be losses, so prepare your mind and not anger and depression. Be safe play Forex, not to be greedy and want to get more profit in rapid time. Allocation little percentage of your deposit to get a little profit, after a few times, you get more profit.

Forex is not same as HYIP
If you usually play the HYIP before such as Autosurf, PTC, PTR, etc., so you must understand Forex Trading is not the same as a HYIP, if the HYIP you can get money allocated for the HYIP site and make a profit immediately, and then in Forex trade, you must manage your own money, you must practice more before becoming an expert in Forex Trading, learn a lot Forex Literature and many articles on the internet, even you should buy Forex books to expand your skills.

Not surrender easily
Maybe during training, you get lost, even in a large amount of loss, but please be patient is only temporary, and after learning of other Forex trader, you become an expert. So, always using virtual money before using real money.

4. Expand your environment

Use Marketiva chatting facility
There is a chatting facility on Marketiva Streamster Software, log in there and find you country, you will be help by other expert traders, don't be afraid, keep active and ask anything you want to know.

Use Yahoo Messenger 2005 - 2006 © Arisson Mercinova S.Kom.
Yahoo Messenger or YM is the most popular Internet Messaging Service that commonly uses by Marketiva Traders, ask for their Yahoo ID and get chatting personally with them. If you want to know about Yahoo Messenger click on: http://messenger.yahoo.com

Forex - Examples

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EUR/USD last trade 1.2850 - One Euro is worth $1.2850 US dollars.The first currency (in this example, the EURO) is referred to as the base currency and the second (/USD) as the counter or quote currency.

The FOREX has a DAILY trading volume of around $1.5 trillion dollars - 30 times larger than the combined volume of all U.S. equity markets. This means that 1,498,574 skilled traders could each take 1 million dollars out of the FOREX market every day and the FOREX would still have more money left than the New York Stock exchange every day!

The FOREX plays a vital role in the world economy and there will always be a tremendous need for the FOREX. International trade increases as technology and communication increases. As long as there is international trade, there will be a FOREX market. The FX market has to exist so a country like Japan can sell products in the United States and be able to receive Japanese Yen in exchange for US Dollar.

There's plenty of money to be made using FOREX for plenty of traders that use the right trading techniques / tactics that will allow them to profit immensely. And, with only 5% of the daily turnover of volume coming from banks, government and large corporations who need to hedge, the other 95% is for speculation and profit.

A Short Introduction To FOREX

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FOREX is the world’s largest and most liquid trading market. Many consider FOREX as the best home business you can ever venture in. Even though regular people have had

the opportunity to take part in trading foreign currencies for profit (in the same way banks and large corporations do) since 1998, it is just now becoming the cool, hip, new "thing" to talk about at parties, business events, and other social gatherings.

Even though it has been somewhat of a loosely guarded secret, every day more and more investors are turning to the all-electronic world of FOREX trading for income and profit because of its numerous benefits & advantages over traditional trading vehicles, like stocks, bonds and commodities.

But, still, whenever something seems new or is just becoming a part of social conversation, news articles, and water cooler gossip, misconceptions have to be overcome, the mind has to be open and the slate has to be clear for starting out fresh with the CORRECT information.

So, in this article, it is my attempt to give you some solid, but not over-detailed, information on just what the heck "FX" (FOREX) means, what it is, and why it exists.

As a successful trader said, Trading FOREX is like picking money up off the floor. Not trading FOREX is like leaving it there for someone else to pick up." Others in the industry have also said, Trading FOREX is like having an ATM machine on your own computer.

Here's an explanation (one I feel you'll appreciate) of what FOREX is and how a bunch of traders, profit from it:

The Foreign Exchange Market, also referred to the "FOREX" or "FX" market, is the spot (cash) market for currency.

But, don't mistake FX as trading the futures market, where you buy a contract to purchase a particular currency at a future price in time.

What FX traders do is much less risky than trading currencies on the futures market, much more profitable, and a lot easier, than trading stocks.

So, you're probably wondering where it's at ... or ... how to access the FX market?

The answer is: FX Trading is not bound to any one trading floor and is not centralized on an exchange, as with the stock and futures markets. The FX market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.

Yes, if that's the first time you've heard about an all-electronic market, I know this may sound somewhat intriguing to you.

Here's what you are actually trading when you participate in the Foreign Exchange (FOREX) market:

Essentially, like the large banks who use the FX market to protect themselves from the fluctuating exchange rate of different currencies, as an investor, what a FX trader is doing is simultaneously exchanging one countries currency for another. So, in actuality, they're electronically trading a currency-pair and the price that is quoted to us is the exchange rate between the two currencies.

What is Forex?

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What is Forex ? The Foreign Exchange market, also referred to as the "Forex" or "FX" market, is the largest financial market in the world, with a daily average turnover of well over US$1 trillion -- 30 times larger than the combined volume of all U.S. equity markets. Unlike other financial markets, the forex market has no physical location or central exchange. It is an over-the-counter market where buyers and sellers including banks, corporations, and private investors conduct business. A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York.the unmatched liquidity and around-the-clock global activity make forex the ideal market for active traders.