Defining the Trader's Edge

Since I started teaching students of Online Trading Academy, I have obviously taken a great interest in the development of their careers and progress along the way. I have taught a variety of individuals, hailing from different backgrounds and each with their very own reasons for taking on the tough challenge of seeking a life as a professional Forex trader.

Some are just looking for a secondary or supplementary income, some are just looking for a new interest in life and others want to become completely self-sufficient from a consistent and profitable trading career.

No matter the needs or ambitions of the trader, one should fully understand the real requirements for successful trading of any kind and that is all about developing an "edge." I have read many articles and listened to a number of students and traders alike and time over, I hear people talk about their edge in the market; however, I sometimes wonder myself if people know exactly what this edge really is that they love to talk about.

Well, if you are confused about talk of the edge and would love to know more, then I guess today is your lucky day...welcome to the Sam Evans definition of the Trader's Edge.

In my opinion, the edge, as we like to call it, is made up of a number of key aspects which shape any trader or independent speculator's ability to profit from the movements of the financial markets. I would categorize these into the following areas:

1. Fundamental and Technical Analysis
2. A Plan for Trading
3. Risk Management

Market Mind Games: What is a Trading System?

Market Mind Games: What is a Trading System?: "A trading system is a collection of formulas and rules that generate buy and sell recommendations. Trading systems ..."

What is a Trading System?

A trading system is a collection of formulas and rules that generate buy and sell recommendations.

Trading systems have been developed for decades, but the recent advances in technology with the pc and internet have increased interest in them and broadened the number of people actively involved in their use.

Technical indicators such as oscillators, moving averages and band indicators are most frequently used to form the rules of trading systems. Combinations of technical indicators are also often used to create of a rule.

Trading systems are optimized in order to manage risk and increase profitablity, and this is done by modifying different parameters within each rule.

Trading systems remove emotion from trading. This has several obvious benefits – for example a trading system will not place an excessively high risk trade due to frustration from a prior losing trade.

Systems can now be fully automated, freeing up time for the trader, and in some cases can run completely ‘hands free’, where even the orders are entered automatically.

Probably the largest problem with trading systems is that it is very difficult to forecast future results in a live market environment- even though a system may have been thoroughly backtested.

Historical backtesting will help indicate the profit potential of a system – however testing should also take place in a live environment through a simulator.

Simulators, while they have the advantage of showing live market results will never be able to recreate exactly how a fill would have taken place and consequently the results in a live market will be subject to slippage.

Slippage reflects the extent to which an orders fill price differs negatively from the price level at which it was entered. For example if a sell stop loss order was placed at 1.2762 in the eur/usd and the order was filled at 1.2755, one would have experienced 7 pips of slippage on the order.

Trading Systems and Foreign Exchange Market

The forex market is the largest and most liquid financial market in the world. The daily dollar volume of currencies traded in the currency market exceeds $1.9 trillion, many times larger than the combined volume of all U.S. equities and futures markets.

Here are some things to bear in mind when considering trading systems and the fx market:

- The massive liquidity of the forex market is an attractive feature for systems developers.

- Normally in trading the spot forex market, there are no commissions, but bear in mind that you will normally be paying a spread of at least 3 pips to enter a trade.

- The most popular fx trading systems are trend following. The forex market generally trends more than the other markets, because it is influenced by macroeconomic trends that take long periods of time to be fully absorbed by the market.

- The 24 hour nature of the market during weekdays makes exiting positions easier, creating a better environment for systems that carry overnight positions.

Trend-Following Systems

Trend following systems, as the name suggests, aim to enter a trend and profit from continued price movement in the same direction.

Perhaps the most famous proponent of trend following systems is the famous commodities trader Richard Dennis.

In 1983 Richard Dennis was having an ongoing debate with his friend and business partner Bill Eckhardt about whether great traders are born or made – whether it is possible to teach the ability to trade successfully.

Dennis firmly believed that trading abilities could be broken down into a quantifiable system of rules that can be taught, while Eckhardt felt the ability was something innate.

Dennis suggested that they recruit and train some traders and give them actual accounts to trade to see who was right on this issue. Ten individuals were selected, invited to Chicago and trained for two weeks.

Dennis taught a trend following trading methodology to the group of inexperienced students, and nicknamed them ‘Turtles’ having recently visited turtle farms in Singapore.

They began trading live accounts shortly after completing their course. Dennis won the bet – over the next four years the Turtles earned an average annual compound rate of return of 80%. Jerry Parker of Chesapeake Capital Corp. was a turtle and now manages more than US $1 billion.

Richard Dennis was featured in the original Market Wizards book by Jack Schwager, a classic of trading literature.

Countertrend Systems.

This type of system aims to identify reversal points in price.

Breakout Systems

A volatility breakout system might entail entering a trade on a stop order above or below the range that has been previously trading – with the expectation that since a breakout has occured price will continue to move in that direction.

Volatility breakout systems are based on idea that if the market moves a certain percentage from a previous price level, the market is likely to see follow through in that direction. In this scenario you are looking for a continuation of the move based on momentum.

The idea is that when a new high or low is established after having been contained within a range of a certain time period, price will be carried by momentum in the direction of the breakout.

Reverse Breakout Systems

A reverse breakout system is designed to fade the move described above.

Another popular type of system are the group based on Moving Averages.

Developing a Trading System

What you will need:

In order to develop a system you will need a data feed in order to do backtesting. Esignal is a popular data provider.

Next, you will want to consider what software platform you want to use.

If you can program well in C++ or MS PowerBasic or .Net languages then you might consider designing your own custom analysis and trading program. For systems where there is not too much data, such as end of day systems, it is possible to build and test the systems in spreadsheet applications such as Excel.

Otherwise, here are several software platforms on the market that you can use to develop systems – the most famous is probably TradeStation. TickQuest’s NeoTicker is another less well known program. Some platforms allow for automatic execution of trades. Normally the platforms will have a proprietary language such as TradeStations EasyLanguage for programming the system.

EasyLanguage is similar in syntax to Delphi, and enables users to construct rules for buying and selling based on anything from a simple technical indicators such as moving averages to complicated algorithms.This languages are normally not very difficult to learn, so you need not be intimidated by this, even if you do not consider yourself a techie.

System development software normally allows you to backtest and generates reports outlining profit, number of successful trades etc.

Performance measures to use when evaluating a trading model include: total number of closed out trades, percentage of winning trades, percentage of long winning trades, percentage of short winning trades, gross cumulative profit or loss, net cumulative profit, maximum drawdown, ratio of net cumulative profit to drawdown, maximum winning trade, maximum losing trade, average winning trade, average losing trade, average profit or loss per trade, number of consecutive losing trades, unrealized profit or loss in open position and distribution of profits over time.

In evaluating your system you should look first at the net profit and also average profit per trade.

You will start out by selecting a market and timeframe and defining entry and exit rules.

For entry rules, you will be looking to parameters relating to the type of system you want, such as trend following, breakout etc. Exit rules can be expressed in a variety of ways, such as fixed dollar amount, a percentage of the current price, a percentage of the volatility, or a time stop.

Smaller timeframes mean smaller profits, but usually smaller risk, while longer term systems, operating on a daily and weekly timeframe offer higher profit potential and also higher risk.

Bear in mind also that in your backtesting you need to have an adequate number of trades to make a valid assumption, so you need to consider this in addition to the time period.

You should test the robustness of your system by applying it to multiple markets and time periods. It is also important to to factor in commissions and any other transaction costs.

If you over optimise a system by adding too many rules, it will be unlikely to do as well under live market conditions. This is what is known as ‘curve fitting’ a system. Generally speaking the fewer rules used the better in designing a trading system.

Market Mind Games: Trend Analysis using Open Interest and Volume

Market Mind Games: Trend Analysis using Open Interest and Volume: "Open Interest (also known as Open Contracts or Open Commitments) refers to the number of active or open contract..."

Trend Analysis using Open Interest and Volume

Open Interest (also known as Open Contracts or Open Commitments) refers to the number of active or open contracts for any given security. It applies to the futures and options markets but not to stocks.

In the futures market it refers to the total number of contracts long or short in a delivery month or market that has been entered into and not yet liquidated by an offsetting transaction or fulfilled by delivery. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted.

The open-interest position that is reported each day for a given market shows the increase or decrease in the number of contracts for that day in the form of a positive or negative number.

It is one of the foremost tools for confirming trends and forecasting trend reversals in the futures market.

- Open interest rising along with prices is a bullish indicator that an uptrend is in progress and is likely to be sustained. It shows that new money is entering the market.

- Falling open interest and rising prices is a bearish indicator, suggesting that the rise is being caused by short sellers covering their positions. The upmove is unlikely to be sustained because new buyers are not entering the market.

- Open interest in a sideways market can suggest a breakout in either direction.

- A rise in open interest in a falling market suggests that a downtrend is in place. New money is entering the market through short sellers.

- When both open interest and prices are falling, this suggests that the longs are closing out their positions, indicating a trend reversal and an upward movement in price.

- Static open interest along with rising or falling prices suggests a possible market top or bottom and trend reversal.

Volume is often used along with open interest. Volume refers to the number of contracts that have to have been traded within a given session. Volume precedes price. 

The higher the volume traded, the more likely a trend will continue. Rising open interest confirms that new money is supporting the prevailing trend.

Market Mind Games: Five Tips for Trading ETFs

Market Mind Games: Five Tips for Trading ETFs: "Every week I tell you about exchange traded funds (ETFs) that you can use for various investment purposes. You could be wondering, though, ..."

Five Tips for Trading ETFs

Every week I tell you about exchange traded funds (ETFs) that you can use for various investment purposes. You could be wondering, though, what’s the best way to buy them. So in today’s column I’ll give you some practical information that will help you implement whatever ETF investment strategy you might want to pursue.

Professional investors make a distinction between portfolio management and trade execution. You might not be a professional, but you can still use the same thought process …

Portfolio management is when you make the decision to buy or sell a particular security. Normally there will be limits on the decision. For example, maybe you only want to buy the shares as long as the price is less than $50. Or perhaps you want to sell all of your shares and be completely out by the end of the month.

Trade execution comes after the portfolio decision. You’ve already decided what you’re going to do; now you want to do it as cost-effectively as possible. Maybe you’re willing to pay $50 a share, but you’d be even happier if you can get in at $49. Good execution helps make this happen.

The importance of execution is directly related to your time horizon. If you’re planning to hold an ETF position for years, a few pennies on the entry and exit may not seem so important. However, those same pennies can add up quickly if you’re moving in and out every week.

With that in mind, here are five suggestions to help improve your ETF trading results …

Trading Tip # 1:

Shop Around for Lower Commissions

Years ago, the only way to get into the stock market was through a broker, who charged dearly for his trouble. Now the story is different. You can bypass the smooth-talking salesman and buy stocks, mutual funds, and (best of all) ETFs online for a very small fee.

If you deal with a full-service broker, he’ll probably try to justify his exorbitant paycheck by telling you his firm really “works” your orders to get the best price. If you’re throwing around millions of dollars at a time, this may be true.

For the rest of us, you probably aren’t getting any better execution than you would at a discount broker. In fact, you may do better at a discount broker that doesn’t have a proprietary trading desk working against you.

These days it’s not hard to find reputable discount brokerage firms with rates of $8-12 for a typical small trade. And there’s really no reason to pay any more.

Trading Tip # 2:
 

Get Inside the Spread

If you look at an ETF quote during market hours, you’ll probably see some numbers called “bid” and “ask.” They may be quite different from the “last” trade price.

Bid and ask are the current market prices. The bid is the highest advertised price that you can get if you’re selling right now. The ask is the lowest advertised price you’ll pay if you’re buying right now. The “spread” between these numbers is how market makers earn a profit.

The key word here is “advertised.” Often you can buy for less than the ask, or sell for more than the bid. That’s why it is usually a good idea to try for a price somewhere between the bid and ask.

For instance, if you want to buy an ETF that has a bid/ask of $25.50/$25.80, try placing a limit order at $25.65. Wait a couple of minutes and see if anyone takes the bait. If they do, you just saved yourself fifteen cents a share.

Also keep in mind that the bid and ask aren’t unlimited. They apply only to a certain share quantity. A bid of $25, for instance, may be good only for 100 shares. Sell any more than that and you’ll get a lower price — and it could be a lot lower!

Trading Tip # 3:
 

Use Limit Orders

Notice that I said in the above example to enter a “limit” order. This is simply an instruction to your broker not to process the trade unless the price is at or better than the limit you define.

If you enter a “market” order, you might not get the best price. What you will get is the best available price at that moment. And it could be substantially higher or lower than you thought you’d get.

I’ve found that it’s almost always better to use a limit order when trading ETFs, even if it means your order isn’t filled right away. The odds are that you’ll get a better price by waiting.

The only exception is a handful of mega-ETFs like SPDR S&P 500 (SPY) and PowerShares QQQ (QQQQ). These big, actively-traded ETFs normally have very tight spreads and ample liquidity. Small orders are filled instantly at the quoted bid or ask price.

Trading Tip # 4:
 

Watch the Underlying Market

Several factors define an ETF’s liquidity. One of the most important is the depth of the underlying market. This is the basket of stocks that compose the ETF. Institutional trading desks often try to pick up some quick profits by moving back and forth between ETF shares and baskets of the corresponding index.

If the index is composed of large, actively-traded stocks, the ETF will probably have an efficient market as well. Likewise, when the index consists of low-volume stocks, any ETF designed to reflect it will also reflect the lack of liquidity.

It also helps for the underlying market to be open when you’re trying to trade an ETF. For instance, if you’re trading an international ETF composed of European stocks, you may do better in the morning. That’s because there’s a few hours in the morning when the European and the U.S. exchanges are open. This means more depth and, usually, better prices.

Trading Tip # 5:
 

Be Aware of the Crowd

On a normal day the stock market tends to have a lot of volume in the first half-hour or so, less action in mid-day, and furious trading just before the close. The same is true of ETFs.

This pattern can work either for you or against you. If you’re trying to move a big quantity of shares, you probably want to take advantage of the depth present in the last hour. If you want to trade against someone who may not have thought ahead, you might find some good prices at lunchtime.

The point is that you must be aware of your surroundings. Market conditions are constantly changing. Just as you don’t go out in the rain unless you want to get wet, you shouldn’t go into a thin market unless you’re ready to turn it in your favor.

Follow these five trading tips and you’ll be surprised how much your results can improve. Are they magic? No, not at all.

You’ll still have plenty of ups and downs. But good trade execution is still a very important step for more active investors.

Best wishes,

Market Mind Games: Free Forex Robot

Market Mind Games: Free Forex Robot: "The Forex robot enclosed is free and everything you need to know about it is enclosed. After reading this article, you will know how it why..."

Free Forex Robot

The Forex robot enclosed is free and everything you need to know about it is enclosed. After reading this article, you will know how it why it works and how by applying it you can enjoy long term currency trading success... There is a huge industry in Forex robots and so called Expert Advisors to choose from which you can buy but is the one enclosed better - the answer is and its better for one simple reason - it makes money. 

The Robots you see heavily advertised are junk. They don't work, and simply rely on made up track records and clever advertising but none of them have made long term gains. Let's look at our free system and it's so simple, you don't even need a computer, it has just one rule and this is the rule: Buy a new 4 week high and hold the position until a new 4 week low is hit, then reverse your position to a short. Keep buying new 4 week highs and selling new 4 week lows and always keep a position in the market. You can't get a simpler system than this but it works and it's obvious why. It's a simple robust long term breakout system and it's a fact that all major moves start from breakouts. 

This system will get you in on all the big trends and get you will get a good chunk of them in terms of profits. This system is not new, it was devised by well known trader Richard Donchian in the late seventies and traders have been using it ever since. The system is simple to understand, very robust, it's based on breakout trading which will always work and its simplicity is the very key to it's success. Simple system always work best, as they have fewer elements to break than complicated ones. Most traders won't use this system though. 

They will think it's to simple to work (despite the fact that it does), it doesn't have any glossy packaging and it doesn't make unrealistic claims. Traders still believe the bought robots with there made up track records will beat it but they don't and never will. 

The system takes discipline to follow as its long term but on the plus side, you only need 30 minutes a day or less to operate it and it gives you an objective signal which you simply follow. Some of the great traders such as Richard Dennis, have been fans of the system so if you use it, your in very good company. 

The system is called the 4 Week Rule, it's been used for decades by savvy traders and has made countless millions in profits. Check out this free forex robot and you will be glad you did and remember - it costs nothing and is totally free.

Market Mind Games: Moving Average Crossovers

Market Mind Games: Moving Average Crossovers: "Many forex traders who have tried using moving average crossovers to time their entry into a trade have probably found them to have limit..."

Moving Average Crossovers

Many forex traders who have tried using moving average crossovers to time their entry into a trade have probably found them to have limited value as they have a tendency to signal an entry late in the move.  If you are buying late, you find that too often you buy near a short-term top or if you sell late, you find that too often you sell near a short-term bottom. 

This would not be so bad in a strong trending market, but the real damage is done in a directionless market where there are many crossovers with no follow-through which can mean losing trade after losing trade.  The key to use moving average crossovers is to first identify the trend of the market and then to only trade in that same direction.  If you find a strong uptrend, then using a moving average crossover as a buy signal has more value. 

If you find a strong downtrend, then using a moving average crossover as a sell signal also has more value.  Since moving averages can help identify the trend of the market, we can develop a simple trading approach using three different moving averages.  This is a daily chart of the EUR/USD with one year of activity.  The green line is a 200-day simple moving average.  When the market is above this moving average we can consider the trend as up and only take the buys. 

When the market is below this moving average, we can consider the trend as down and only take the sells.  We are also using a 10-day simple moving average which is the black line and a 25-day simple moving average which is the purple line.  When the fast moving average (the 10-day or black line) crosses from below to above the slow moving average (the 25-day or purple line), a buy signal is given. 

We can see that there were three crossovers on the chart below and that the market continued to move in the direction of the trend after the crossover.  The key here is to first identify the trend and to only trade the strong trends to increase your chance of success.

Market Mind Games: The Importance of Fibonacci levels in Trading

Market Mind Games: The Importance of Fibonacci levels in Trading: "If there is one thing in the whole technical analysis panoply of tools, we would choose the Fibonacci retracement percentages ladder. It..."

The Importance of Fibonacci levels in Trading

If there is one thing in the whole technical analysis panoply of tools, we would choose the Fibonacci retracement percentages ladder. It is not the place to enter into the theory behind these numbers but it is always amazing how well their use will help the trader-investor in his efforts to understand the markets gyrations. 

There are many applications in which we can apply one variant or another of the Fibonacci numbers and their relationships, but our preferred one is this power of theirs to predict levels of retracements in a corrective phase. 

In the classic technical analysis methodology, a correction should be between a third and two third of the previous move. Less than that, it would be viewed as a part of the trending move and not a correction. More than that would be considered a "deep correction" with a tendency to treat it as the first sign of weakness in the prevailing trend. The Fibonacci counterpart of one third is the 38.2% area and the one for two third is the 61.8% area.

Furthermore, the 50% retracement is considered the most common in the financial world of assets. Half is a nice point of reference and it seems at times that it is a prophecy that is fulfilling itself. So many traders look for this area for a re-action in the price, that many of them will come and buy or sell in this exact point. By doing so, they are creating the effect that they are waiting for.

Our visual aid is the weekly chart of the USDJPY with a daily chart insert. Look how many price moves have been retraced by EXACTLY 50% (back, blue, light green) and EXACTLY 61.8% (violet, orange). You can also find many more in the daily and intraday time frames.

How can we use this feature effectively? First, the trader should understand that the price and only the price is giving signals to go long or short. Any other indicator or tool is only helping. Some a bit more than others and we consider this one a great help. So, the thing to do is "to be ready" when the price arrives near the Fibonacci percentages.

If the correction suddenly stops and reverse, it is a good sign that the old trend is returning and to enter a position in its direction. Such a position should be protected by a very tight stop-loss over or under the Fibonacci level that was the limit of the reversal. For example: in the black correction (end of 2002) the trader would be prepared from 124-5. When the price did break the ascending channel, the trader should have taken a short with a SL at 125.75.

What about now?

The daily insert shows that the current correction up did not yet reach the 50% Fibonacci retracement. In view of the history in this pair, it is safe to say that there is a way to go to the upside for the USDJPY. We should be ready near 115-116 and then near 118 for the end of this move. If the JPY will go further, we should consider that a change in the main trend is in the cards.

Market Mind Games: Forex Stop Loss? I Don't Want To Use It

Market Mind Games: Forex Stop Loss? I Don't Want To Use It: "Last week I was reviewing a website which has a trading signal program for those investors who prefer to not being involved in confusing..."

Forex Stop Loss? I Don't Want To Use It

Last week I was reviewing a website which has a trading signal program for those investors who prefer to not being involved in confusing market analysis and I respect them because such services normally will bring them more time to do other important things in their daily life. But the interesting thing was the most of signalers did not actually place a stop loss point on their recommendations. Is that so because they know they are right all the time? Or that's because they did not lose half of their trading account in an unexpected slump of 200 hundred points and a single trade. 

However, the answer is most of them have something between -1000 to -5000 pips of open trades on their signal board and they actually trapped in desperately while they could cut the losing trades and ran another one instead. Also I should mention that there are some other types of system trading that called "Hedge Fund" and I don't actually want to argue if they are right or wrong. I am definitely talking to day traders who get into challenge with big bear every day.

Sometimes, I don't understand why a trader could be convinced of not having a Stop Loss while we see almost every month an unexpected uncounted impulse (I would call it Best of the Test for whom with less of the rest) in the market.

There is no specific rule as to where you should place the stop loss, so consider the below mentioned tips as the general rules and ask your mentor to fit reliable Stop loss rules just for you and your trading system(If you have one?).

• Many loser traders do place the same stop loss for all the trades they execute without even trying to measure market environment.
• Don't be scared of placing a stop loss while it is for your gain and you must know what your profit objective is.
• Stop Loss should not be too close to the current price while most of the stop loss enemies have ruined their trading accounts already just by using very close ones.
• Stop Loss should not be too far from the point you get into trade while it's better to not placing any Stop Loss rather taking an unreachable, fictional protector.
• Try to not to risk more than the points of your profit goal. Pro traders recommend to only take those trades which have at least 2 points of potential profit per 1 pip of potential lose, but I would say it is completely depends on the money management system that you use, as different money management systems has different recommendations for Risk & Reward.
• Sometimes a trading system does not work if you risk less than recommended %7 to %10 of your total account balance. It means you trade oversize or you just entered the market when everyone else getting out of the market. In this case this is not your fault as it has a clear message for you "don't trade this way anymore and ask an expert to solve the problem".
• If you are convinced enough that you can make up 1 million dollar out of your 10000 dollars account by not using stop losses as you may think you are the one who knows the price will be back on its way to you instead of hitting new highs, well, simply you are wrong.
• Remember, there are no sky limits for the price of any of currencies in FOREX market.
• If you don't like to place a pre defined Stop Loss on your trades, please ask someone to show you how to follow a wining trade by using "Trailing Stop".
• Be sure it is better to have one or two losing trades with 100 points of lose, instead of being desperate with sinking into -1000 pips of dizziness.

How to Define the Best Stop Loss point?

Try these tools to define the most accurate stop loss points easily:

• Use 10 pips over/below the first Parabolic SAR spot(dot) appeared over/below the price candles for Short/Long Trades.
  Note#1: Remember you just can use 10 pips above the parabolic SAR dots as an Stop Loss point when you have a Short trade and Vice Versa.
  
• Note#2: You realized that the Stop Loss obtained from SAR is too far from the point which you want to enter the market. OK, this means you are about to enter the market very late so better to not do it.
• Use 10 pips over/below the day before yesterday's HIGH and LOW and in the case of the market has moved a lot far, use 10 pips over/below the yesterday HIGH and LOW as a Stop Loss point for your Short/Long trades.
• Use two Moving Averages of 55 EMA and 144 MA. You may place your stop loss just 10 pips below/above one of those two MAs depending on how do you set up the profit/loss game for your Long/Short trades.
  Note#: If you trade on the range market break out be aware of this kind of Stop Loss setting, and it is quite safer to use another way.
• Place the Stop Loss 10 pips over/below Bollinger Bands Upper/Lower band for Short/Long trades.
• If you use Elliot Waves theory to analyze the market:
  # Place the Stop Loss just 10 pips below the lowest point of the Second (2) wave in bullish trend when you LONG on Wave 3.
  # places the Stop Loss 10 pips below the lowest point of the 4th Wave when you go for LONG on 5th Wave.
  # Place the Stop Loss right above/below the top/low of the previous wave when you go for SHORT/LONG based on A-B-C correctional waves.

Market Mind Games: Learning How to Exit Forex Trades Properly

Market Mind Games: Learning How to Exit Forex Trades Properly: "For newer currency traders, the main focus should be entry points. The exit should be determined by your risk to reward. For example, if ..."

Learning How to Exit Forex Trades Properly

For newer currency traders, the main focus should be entry points. The exit should be determined by your risk to reward. For example, if we are risking 100 pips on the trade, we should look to take profits when we are up 200 pips in the trade. That is the basic rule. I might suggest increasing that to 300 pips and a 1:3 risk to reward ratio.

Now, of course, we might hold for a longer period of time in some situations. But that is a little more advanced. Learning to exit is the most difficult aspect of currency trading. Even extremely successful forex traders struggle with exits from time to time. We should learn how to enter and place our stop first. This should be very mechanical. Exits are more of an art form.

The key point is that we should strive to acquire an exit problem. What to do with all these profitable trades? You might spend the rest of your trading career dealing with that issue. My point is that it is a good problem to have. But many traders do not get to that point because they have not mastered the entry, which in relative terms, is a lot easier to master.

Market Mind Games: Losing in Forex? Stick to a Trading Plan & Study Y...

Market Mind Games: Losing in Forex? Stick to a Trading Plan & Study Y...: "Forex traders lose money in currency market for many reasons. They may not have the right methodology to trade with. They may not have cle..."

Losing in Forex? Stick to a Trading Plan & Study Your Mistakes

Forex traders lose money in currency market for many reasons. They may not have the right methodology to trade with. They may not have clear understanding of how the market works, key indicators, key numbers, and ideal times to trade. Risking too much per trade and not being mentally prepared for the ball game.

Whether it’s the result of unexpected market events or simply a poor trade idea, losing money invariably leaves one with a miserable feeling. Worst still if it is happening over and over again- a trader also feels loss of confidence and right attitude.

In my tenure as a trading coach and guide I have come across and observed many traders who consider putting in real money even when they are losing with their demo account. I don’t think anything can be worst than that. But then there is little you can do as a coach when someone has lost the sense of direction.

Some of the most common consequences of losing in Forex could be that the trader gets into frenzy and makes haphazard trades without a pre-plan and as a result losing even more, or the second outcome could be that he may be so scared of incurring any more losses that he starts to avoid trading.

Real traders are those who don’t lose mind and fret over losing trades for too long and take the message in the right frame of mind. They normally resort to studying the mistakes they made along with the prevailing market conditions to the time the losses occurred.

The traders try and take a micro view of the factors that resulted in price movements. These in-depth analyses done inside out will help these people to develop better and more realistic trade strategy for the next time similar situation crops up. A trader should make it his habit to review his trades whether they are winning or losing deals. This ongoing process of studying his trades and mistakes will help him to improve his trading strategy and system. This will help him gain perspective that works. He will be able to bring down the number of losing trades over a period of time as he will be learning new market patterns and adapting to them.

The process of learning can be broken up into three phases: Analyzing the trade itself, reviewing, and innovation. Let us first look at the act of analyzing the trade. Analyzing your trade irrespective of the final outcome, whether the trade resulted in loss or profit is the first step towards building a career as a successful and professional forex trader.

Next comes reviewing or feedback. A trader should remember at all times that he is not in a position to watch himself as he trades. In such a situation it becomes important that he takes a third-person’s point of view, keep a note of every aspect of his trade from his thinking pattern, to market movements, and based on the facts he can analyze if what he did was right or wrong.

After you have kept a record of what and how you’ve traded, the next step for the trader is to incorporate changes, bring amendments, and rectify the mistakes wherever required.  

If during the second phase of reviewing some lacunas were found they have to be taken care of at this stage. It could vary and cover any aspect right from changing currency pairs to market timings to changing the trading system or spending some more time on demo account.  By taking this exercise up a trader can compete and develop his skills much, much faster.

The impact of the recording, reviewing and making adjustments and re-aligning the procedure turns the trading deal into an experience you can learn something from which indirectly speeds up the learning process. And come to think of it, it is not difficult at all. It’s simply a matter of forming a habit and sticking to it.

A wise trader will also try and steer clear of the psychological pitfalls.  He will make sure that greed to make a quick buck, or extreme fear of losing money in trade will not get better of his sensibilities and market realities.  A Forex trader will make sure he does not overtrade and his money management skills are in place.

Being in a hurry or indiscipline is another major pitfall for a trader. When a trader is on a losing spree one after the other he tends to throw the trading plan out of the window and soon thus abandons some perfectly good trading methods. A trader should understand that every trading method has its time and situation frame within which it succeeds. At other times it could perform below average. A sensible trader will realize that no matter how good a trading base be, it cannot perform, at peak efficiency under all types of market conditions. If you want to become a successful trader in the long run you will have to inculcate the discipline to stick it out through the hard times without losing the focus.

To become a successful trader, you have to stay composed, be rational and emotionally detached. These traits are generally found on new traders. Experienced traders are far cooler and composed and have learnt over time that you’ll win some and you’ll lose some. An experienced trader trades with enough money to allow for a buffer when losing deals come. You should be ready to handle the losses, because they are inevitable and are bound to be there. A trader learns to control his emotions after wins. Learn to take winning in your stride. Automatically you will learn to handle losing deals too.

So that is that. Lose money. Do not lose the lesson. Do not let learning stop.

Our Forexoma Live Market Analysis program is a perfect training course for those who want to become independent and profitable traders. The most important feature of this program is that it teaches you home to trade like a professional and disciplined trader. Lack of discipline is the biggest problem of 95% of traders. Our program helps you learn to have and keep the discipline that a professional trader needs.

Market Mind Games: What It means to Be a Successful Forex Trader?

Market Mind Games: What It means to Be a Successful Forex Trader?: "People often misunderstand what it actually means to be successful. According to an average guy, a successful trader is the one with a lot ..."

What It means to Be a Successful Forex Trader?

People often misunderstand what it actually means to be successful. According to an average guy, a successful trader is the one with a lot of money who can lead a dream lifestyle without having to look at the price tag! But that isn’t what it means to be a successful forex trader. A successful trader on the contrary is the one who has built enough wealth to create enough cash-flow every month, to cover his or her expenses for the rest of his life. So basically a successful trader is the one who is on his way to create assets that he can survive on whether he works or does not. Money will be flowing in perpetually.

Creating assets should be the main objective of a forex trader. A good trader knows how to align all his assets in a way that they will provide him with a steady monthly income. A successful trader or an aspiring individual who wants to make forex trading his long term career will not look at a paycheck because he will be working towards creating a steady income for himself. So if your assets make more than enough money to cover your expenses, consider yourself a successful trader. Building wealth and investing it wisely will last forever. Short term gains won’t.

A smart and successful forex trader will make his money work for him. He will probably invest into bonds, stocks, businesses, gold, or real estate, so that it’ll make more money in future. Once a trader learns this little secret he will never need to really worry about having a job, if things do not work out because he will never need one if he is focused and clear about his goals.

Majority of forex trading individuals are the people who became successful and rich and weren’t born with a silver spoon in their mouth. It took them hard work and dedication to become successful.

When we are in middle and high school, we’re taught that we can make money by getting a good job. Since this is so deeply set in our minds and we are conditioned that way and as a result majority of us get addicted to the idea of a job or an hourly wage. We have not programmed out mind for anything other than that.  We think of hourly wage, monthly paychecks, yearly bonus, jumping jobs, corporate career etc and do not contemplate doing something unique that will help us build more wealth and will make us many times more financially and emotionally secure as compared to keeping and going on with a drab job.

I am hoping through this article I am making some sense to the readers that will make it easy for them to tell when an individual is successful and rich or not. If a person’s assets produce enough money every month to cover his or her expenses, then that person is successful as a forex trader.

Ways in Which Individual Investors Can Benefit From Forex Trading:

There is little doubt that all these years’ only large multinational and individual banks and major financial institutions had been dominating FX trading but the changing times have given way for a paradigm shift in the nature and type of investing. Forex trading has become accessible and has been on an upswing amongst fellows from all walks of life so much so that these days’ start-up firms are competing directly with financial institutions to serve investors in the new technologically driven economy. And in this entire hullabaloo the real winner is the customer. Internet has empowered the individual investor to take control of his own investment strategy in forex trading.

Now as we already know that like in the past, foreign exchange trading is no more limited to large banks and institutional traders. With recent advancements in technology even small traders are taking advantage of the benefits of forex trading with the help of online trading platforms. Forex trading is on 24 hours a day and 5 ½ days a week.  Online trading has revolutionized the currency markets by making it accessible to the small and medium sized investor. Investor is jumping at the rooftop all excited. It’s an opportunity for him to build wealth if he learns to make use of it with his mind and eyes open.

The forex trading is perhaps the largest financial market in the world. Forex trading is about simultaneous buying of one currency and selling of another. The world’s currencies are on a floating exchange rate and are always traded in pairs, for example EUR/USD or USD/JPY or USD/INR etc.

In the new millennium, the forex trading has become accessible for an individual investor or small group of investors. Forex traders have been seen to reap many benefits from forex trading as compared to stock market, e-mini futures and such other trading.

Today mostly traders are choosing forex trading in comparison to stock trading because while there are around 4,500 or may be more stocks listed on the New York Stock exchange, and 3,500 are listed on the NASDAQ.  In spot forex trading, you have 4 major markets, 24 hours a day 5.5 days a week.  You are more likely to do well in terms of finding good trades in forex as currency pairs are limited and fixed. Forex trading is easy and hassle free as compared to stock/future market.

Not only is it an accessible, easy and less capital-intensive business opportunity, but it is much more cost efficient too to invest in the forex market, in terms of both commissions and transaction fees as compared to Stock or other forms of trading. Commissions for stock trades as generally observed range from $7.95-$29.95 per trade with on-line brokers to over $100 per trade with traditional brokers. When you compare these notes with stock trading the stock commissions are related to the level of service the broker offers to its members. Traditional brokers offer full access to research, analyst stock recommendations, and so on. Online Forex brokers on the other hand charge significantly lower commission and transaction fees.

Market Mind Games: Day Trading Versus Swing Trading In Forex

Market Mind Games: Day Trading Versus Swing Trading In Forex: "If you are a novice trader, this should be one of your important questions that if you should be a day trader or a swing trader. It is a li..."

Day Trading Versus Swing Trading In Forex

If you are a novice trader, this should be one of your important questions that if you should be a day trader or a swing trader. It is a little hard to decide at the beginning and sometimes even after two years of practicing you still don’t know if you like to be an intraday trader or a swing trader.

What is day trading?

Day trading or intraday trading means taking positions during the day, closing them by the end of the day and not leaving any open position before going to bed. It means whether you make or lose money, your positions are all closed before you go to bed or at least you move your stop loss to where the profit you have made is protected and you just want to make some extra profit, if possible.

For day trading, you mainly have to use small time frames like 30min and smaller and it is not possible to trade intradaily using big time frames like daily or even 4hrs.

What are the day trading advantages?

The first and most important advantage of intraday trading which is also the most important reason of choosing this trading method by many of the new traders is that in intraday trading you do not leave any of your positions open at the end of the day and when you want to turn off your computer.

Most novice traders can not have any open position when they go to bed. They cannot tolerate the stress. One reason is that they take too much risk, or they do not set a proper stop loss, or they trade with the money that they can not afford to lose. So if the market goes against them while they are asleep, they lose a lot and that is why an open position ruins they comfortable sleep. And of course the other reason is that they are not experienced enough and forex trading is still stressful for them.

The other thing is that most novice traders think that if they work with the smaller times frames, they will have more trading opportunities and they can make more money. They do not want to miss any of the market ups and downs and so they work with the small time frames.

There is nothing wrong with intraday trading if you do not take too much risk, set a proper stop loss for your positions and trade with the money that you can afford to lose. But if you make these terrible mistakes, even the smaller time frames that provide more trading opportunities cannot help you to make money and you lose all the money you have in your account. Money management is the most important aspect of any trading method that you can have. If you do not follow the money management rules, you can not survive in forex jungle.

Swing Trading:

In swing trading, traders use the bigger times frames like 4hrs, daily and even weekly and monthly. Naturally sometimes you will have to leave your positions open for several days or even weeks. Most of the experienced traders prefer swing trading. First because they have already tried all other kinds of trading methods and they have come to this conclusion that they are more comfortable with the bigger time frames and trading with these times frames makes enough profit for them. They have become able to control their greed and so they don’t want to take all the market ups and downs. They believe that small times frames may give them some more trading opportunities, but more trading opportunities doesn’t necessarily mean more money. Sometimes it means more losses.

On the other hand, they do not like to sit at the computer the whole day. They have learned that it doesn’t make more money for them, or even if it does, they are happy with less profit that comes through several hours of less working and struggling.

Market Mind Games: What Does Discipline Mean in Forex Trading?

Market Mind Games: What Does Discipline Mean in Forex Trading?: "Everybody has a different definition for discipline. Most people think that discipline means seriousness in doing something. This is ..."

What Does Discipline Mean in Forex Trading?

Everybody has a different definition for discipline.  Most people think that discipline means seriousness in doing something. This is true but discipline has a wider meaning when it comes to forex trading.

In forex trading, discipline means following your trading system rules exactly and precisely. Over 95% of forex traders lose, not because they do not have a good trading system or they have not learned the techniques. They lose because they fail to follow their trading system rules. They lose because they have no discipline. When you ask them about the techniques, indicators and systems they use, they explain very well, but when you ask them about their performance and results, you will see that they are not profitable yet.

• Do you trade without setting a proper stop loss?
• Do you make your stop loss wider when it is about to be triggered by the market?
• Do you trade everyday, even when there is no strong trade setup?
• Do you insist to take a position whenever you sit at the computer?
• Do you try a different trading strategy, time frame, indicator and… everyday?
• Do you take a position when you hear that someone else has the same position or some people say that a currency goes up/down against another currency?
• Do you close your positions before they hit the stop loss or target?
• Do you take too much risk?
• Do you overtrade?
• Do you overanalyze?
• Do you take a position because you need to make money?

If the answer of any of the above questions is positive, it means lack of discipline is your problem and you will keep on losing as long as you do not change yourself and you don’t trade like a disciplined trader. And finally you will give up and you will lose the chance of making money through forex trading for the rest of your life.

Who is a disciplined trader?

A disciplined trader…

• Has a well-developed and at the same time simple and practical system.
• Trades only when there is a strong and perfect trade setup. He doesn’t mind not to trade for several days. He is like a hunter. He doesn’t waste his bullets when he knows that the prey is not close enough.
• Doesn’t look for new trading systems everyday, because he has come to this conclusion long time ago that his own trading system is the best for him and he has the best result with it. He also knows that there is no Holly Grail system and “grass is not greener on the other side”.
• Sets a proper stop loss for each of his positions and never makes his stop loss wider when it is about to be triggered by the market.
• Never lets a profitable and nice trade to be converted to a losing position because of maximizing his profit and breaking the others’ records. He knows where he will be out as soon as he takes a position.
• Never tries to make a huge profit by taking too much risk. He is always loyal to his Risk/Reward and money management rules.
• Never gets upset when the market hits his “reasonable stop loss”.
• Never regrets when he misses a strong movement just because the trade setup that was formed before the movement, did not look strong and perfect enough.
• Doesn’t get overconfident when he achieves several winning trades or even several winning days, weeks, months and years.
• Doesn’t lose his confidence when he has a losing position, day or even week or month.
• Doesn’t take a position just because the others have the same position or he has read or heard from somewhere that a currency will go up/down against another currency.
• Doesn’t take any position based on his thoughts. He trades based on the signals that he sees on the charts.
• Doesn’t overanalyze.
• Doesn’t overtrade.
• Doesn’t see beyond obvious. He just sees the signal which is in front of his eyes.
• Is not greedy.
• Has no fear.
• Doesn’t exaggerate about his success.
• Is humble and helps the novice traders to find the right way easier. He never misleads the other traders, specially the novice ones. He is aware of “Karma”.
• Is…
• Doesn’t…
• Is…
• Doesn’t…

Are you such a person and trader or you are trying to make money through forex trading while you have not reached to such a level of confidence, discipline and personality?

Forex trading is not about the techniques and trading systems only. 90% of forex trading is related to the things that I explained above and this is what Forexoma members learn to achieve. They not only learn the techniques, but they learn to become a disciplined trader within the shortest time. I help them not to make the mistakes that 95% losing traders do, the mistakes that I also made when I started.

I tell them how I was about to give up at least for a few times, but I gave it one more try and finally I reached to the level that was described above. I recommend you to join us. There is nothing to lose. However if you don’t join now, one or two months later can be too late, because I can not continue this service forever.

Market Mind Games: Ten Important Forex Trading Tips

Market Mind Games: Ten Important Forex Trading Tips: "1. Do not trade forex if you have to make money. Emotions have a strong impact on forex trading and if someone has to make money, he will h..."

Ten Important Forex Trading Tips

1. Do not trade forex if you have to make money. Emotions have a strong impact on forex trading and if someone has to make money, he will have more emotions than someone who likes to make more money, but doesn’t have to. If someone is desperate to make some money to pay his bills and mortgage, he loses money in forex, because he trades when there is no sharp and confirmed signal. You can become a full time forex trader and you can trade forex for a living later when you learn it properly and completely. At the beginning, you should have another source of income that covers all your expenses, otherwise forex will not have any good result for you.

2. Do not compete with the other traders. Any trader has a different trading style and strategy and so traders pip and money results are different from each other. While someone doesn’t like to take more than 2% risk in his trades and he is happy with a 5-10% profit every month, another trader may like to take a 20% risk and he likes to double his account every month. It takes a while until a new trader finds his own style and when he does, he should never even ask how much the other traders make. Trading is like walking on a tight rope. You lose your balance and fall down if you try to walk faster than what you can.

3. Trade the signals not the trades! After having a few successful trades and growing your capital, you may think that you can take a little more risk and also take the signals that don’t look good and strong enough. Then you will lose all you had made in your good trades. Whatever that your previous trades are, winning or losing, it doesn’t matter. You should forget them. You should only focus on the signals that form in front of your eyes. Do not risk more than usual, both in lot size and in signal quality, just because you have been successful in the past few days and you have more money in your account. You can lose all the profits you have made in a few minutes.

4. Break your rules and you get burned. If you have become a disciplined trader after so many months or years of practicing and learning, you should keep in your mind that if you break any of your trading rules, you will be in trouble and you will lose again. Forex market doesn’t know you. It doesn’t know if you are a new trader or you have been trading for several years. If you make a mistake, you lose. No matter how experienced you are. Here are some of my trading rules that make me lose (or lose more) whenever I break them:

• Moving the stop loss: Each position should have a reasonable stop loss. Let your stop loss to be triggered. It is there to take care of your capital. Do not move your stop loss when it is about to be triggered. I lost more whenever I did it.
• A tighter or wider stop loss: As I said, each position should have a reasonable stop loss. A tighter or a wider stop loss means bigger or more frequent losing trades. Whenever I broke my stop loss setting rules, I lost more.
• I lose whenever I take a position that has no strong and sharp signal. When any of my system rules are not met and I take a position, that position will be a losing position.

5.  In forex trading, over-confidence is more dangerous than having no confidence. Someone who has no confidence, doesn’t do anything. There is an advantage in it. He doesn’t lose any money. But someone who becomes over-confident after a few successful trades, will blow up his account in one trade. A few good trades don’t mean that you are a professional and advanced trader. Like a few bad trades that don’t mean that you are a bad trader. Over-confidence is something that you will experience several times while you are still learning. You will learn to recognize this dangerous emotion after having some losses promoted and motivated by it. Anytime that over-confidence causes you to lose, you lose your confidence and feel more fear. If you don’t give up and keep on practicing, you will gain your confidence again, but you will become over-confident because you forget the problems it made for you the last time. So you lose again. And this cycle may be repeated for several times until you learn to recognize and control your emotions. Of course if you do not totally give up during this up and down. Monitoring your behaviors, emotions and thoughts help you to pass this stage sooner and easier. It is the most important stage in forex trading and most people give up at this stage. Those who come to a balance will become profitable traders. They are not over-confident and so they do not ignore any of their trading rules and they analyze the market properly and precisely to find the best trade setups. At the same time, they have no fear because they are confident enough. This is the balance.

6. There is nothing more important than experience in forex trading. Sometimes you see a trade setup, but your experience tells you not to enter. This experience can be gained through practicing. There is no magic formula in forex trading that can be given to you and make you a profitable trader overnight. It takes time and needs practice.

7. Do not take any position just because someone else has the same position. Novice traders are used to exaggerate about their success and hide their failure. Whenever they make a good trade, they talk about it with a lot of excitement, but they are not used to talk about their losing trades. This may make you think that some people are the best traders of the world and so when they say they are long or short, you take the same position just because they have the same position. This will not make any money for you, nor makes you a trader. A professional and profitable trader is humble, because he knows that Forex market breaks the bones of a bold and stubborn trader who knows himself as the best trader of the world. Market is stronger than all of us. Nobody can defeat it.

8. Do not try so many systems. I takes your whole life and you are still trying. Some people have a researching spirit. There is nothing wrong with it. It is even very good. But when it comes to Forex trading, researching spirit does not let you make money, because it causes you to spend all your time and your life to try and compare different systems and methods. After a while of trying, a rational beginner will come to this conclusion that the secret is not in trading system. The secret is in discipline and controlling of the emotions. So he stops trying, chooses a suitable system and starts making money through it. Whereas other beginners keep on testing, trying and comparing and will finally give up after wasting a lot of time and money.

9. Keep it simple. A Forex trading system does not have to be complicated to work. In contrast, simple systems have better results.

10. Take a break every now and then. You do not have to work hard to make money through Forex. In contrast, spending too much time in front of the computer and trying to take all the movements will make your mind and body too tired and then the chain reaction of bad positions will be triggered. You can not force the Forex market to work for you. It will not. As I said earlier, it does not know you and it has no mercy for you. YOU have to take care of yourself and your capital. Forex market does not do it for you.