4 Guidelines for Forex Trading I Follow

Monday, December 15, 2008
Forex trading may become a much easier activity if you follow your own or someone else’s well-formulated guidelines. I’ve based my guidelines on my past Forex trading experience and knowledge gained listening to some of the best stock and Forex traders. What’s important is that the guidelines are not the laws and rules — they are not the only way to success, they just help the traders in their endeavor. Here’s the list of my four Forex trading guidelines:
  • Risk only 3% of the total trading capital with each trade. Generally it’s quite hard to come up with the comfortable risk percentage value for your trades if you want to keep a good money management and still let your funds grow at a nice rate. For me 3% is the optimal level — safe enough to save and high enough to gain.
  • Reward-to-risk ratio should be no lower than 1. Many currency traders prefer trading with the ratio not less than 2 or even higher. That’s a problem of risk/gain balance too. For me the opportunities with the ratio above 2 are very rare — maybe, because I prefer high accuracy trades. If your accuracy rate is far from 90% than sticking to reward-to-risk ratio of 2 would probably be a better decision.
  • Don’t leave the positions open through the weekend. The weekly opening gap can be a killer. Don’t underestimate it. As a swing trader, I prefer to open my positions in the beginning of the week and I always close them before trading ends on Friday. The gap in the price rates that usually occurs after a weekend can make your stop-loss trigger far from the levels you planned it to.
  • Wait before opening a new order after you’ve just traded. If you jump into another position right after you closed or opened a previous order is a straight road to overtrading and an empty balance. I always wait some time analyzing opportunities and resting from the Forex market before setting up my next order. Maybe, for the extreme scalpers this isn’t a best decision, but for the absolute majority of the medium-term Forex traders it is.

Forex: Tools of Trade

Monday, December 1, 2008
Although, the success in the Forex trading is largely associated with the trading strategies and systems that can be usually bought for money, those are not the real tools of the Forex trader. They can only be considered as the «shortcuts to the riches». Every professional should employ his own tools of trade and the Forex traders should have them too. Independent on the professionalism level of the trader, these tools help to analyze the markets and to calculate all the necessary numbers for money management and position taking:

MetaTrader 4 platform — perhaps the most important of the tools, a successful Forex trader should have. Even if you don’t trade with MetaTrader broker you should still download this free platform and use it for charts and technical analysis. With MetaTrader you can browse charts and the past history of almost all currency pairs, you can apply dozens of standard indicators and use the custom user-tailored indicators, you can back-test strategies using their strategy tester and forward-test your systems and expert advisors on the free demo servers. MetaTrader is your number one tool if you want to go beyond the beginner’s level in Forex.

Risk and reward calculator — a helpful tool if you prefer to know your reward-to-risk ratio before opening a real money position and manage your risks correctly. This risk-to-reward calculator will only for the chart patterns with the distinctive local peak and bottom. It’s based on the Fibonacci retracements.

Pip value calculator — it’s not a trivial task to calculate the value of a pip if you trade exotic currency pairs and/or have your trading account in some exotic currency. Understanding the value of the pip is important to accurately calculate your profits and losses. The on-line pip value calculator tool will help you to determine the pip value with the minimum efforts from your side.

Pivot points calculator — this tool will be useful to you only if you prefer to trade using technical pivot levels. There are many types of pivot calculators available — floor pivots, Tom Demark’s pivots, Camarilla pivots, Woodie’s pivots, etc. I suggest you using the on-line pivot point calculator, which combines the calculation of all the possible pivot point types.

Fibonacci calculator — if you trade via the MetaTrader platform you don’t need a separate Fibonacci calculator because you can use the standard indicator to build Fibonacci retracement levels. But if you use some web-based or some other inferior platform, you’ll enjoy calculating the Fibo levels with the on-line Fibonacci calculator.

Double Impact of the Interest Rates on Forex

Monday, November 10, 2008
The interest rates, set by the world’s central banks, are widely used in the Forex trading. Their changes are monitored by the traders and investors because the interest rates determine the fundamental value of the currencies. It’s important for every Forex trader to understand the impact of the interest rates on the currencies he trades on. It’s easy to find the interest rate table to know their latest values, but how to interpret them?

In general, the higher the interest rate associated with the currency is, the better it’s for that currency. Higher interest rates attract investors, because they offer a higher yield. Forex traders prefer buying high-interest currencies versus the low-interest ones to gain the difference yield (such trading technique is called carry trade).

On the other hand, the lower interest rates are usually more popular among the traders when the global volatility rises and the world’s financial system experiences problems. The current financial crisis shows that the currencies with the lower yield are the favorites, because they are less risky than he high-yielding ones.

So what to do and how to react on the interest rates? The volatility index (VIX) is a good tool to measure the global interest rates preference. If it’s below the «normal» level of 30%, the high interest rates act as the attractors and the currencies that have high yield grow. If the index jumps up above that level, the traders prefer to move into the less risky assets and the low interest rate currencies gain.

How Do Forex Brokers Make Money?

Thursday, October 23, 2008
Many beginning Forex traders wonder how the Forex brokers earn their money on the common traders, if they are not casinos. Understanding the basic principles of the brokers’ economics will help traders to distinguish real Forex brokers from the «bucket shop» scams and the ethical companies from the unethical. Here is the list of the most common ways for the Forex broker to earn money:
  • Currency pair spreads. The largest source of income for the Forex brokers, spread is the difference between the Bid and Ask rates. Broker can execute your orders without a spread or with a minimal spread, earning the money that you lose for the spread.
  • Leveraged spreads. Spreads alone would be too small to be a significant earning source for the brokers. So, brokers offer high leverage. Of course it’s a great tool for multiplying your profit (and also losses), but the spreads are also leveraged. With 1:100 leverage, broker earns 100 times more on spreads than it would without the leverage.
  • Overnight swap spreads. Brokers pay the overnight swaps to the trader if the difference between the currency’s interest rates is positive in the trader’s position and get paid from the trader’s account if that difference is negative. But those payments are not symmetrical and they are changed so that the Forex broker would always get the advantage. When someone is selling 1 lot of EUR/USD and another trader is buying the same amount of that currency pair, the latter is earning money on overnight swaps, but the first one is losing the amount that is enough to compensate the second one’s earnings and to «feed» the broker.
  • Payment processing commission. On-line Forex brokers don’t charge commission per trade (except Islamic accounts) and often advertise that as a feature. But some brokers charge payment processing fees — they are deducted only when you deposit or withdraw money and usually are quite small and fixed in currency units, not percentage points. Of course, such commissions are too small to be a part of the broker’s profit, but they are enough to compensate at least a part of the broker’s expenses.
  • Trading against the trader. The most despised and unethical way the Forex broker can make money is to trade against its customers. And that’s the most profitable way too. Avoid the brokers that earn when you lose. If the spreads are too low, the leverage is insignificant, the overnight swaps are fair and there are no commissions (for payment processing and trading) then the broker is certainly trading against you to make money.

Forex: Keeping It Simple

Friday, October 17, 2008
Keeping everything simple is a nice strategy in almost all types of activities. Sometimes, simplicity is the only way to become profitable in the Forex trading. Of course, not everyone likes to keep everything simple and not everyone should do that. But simplifying some basic aspects of the Forex trading will help you to avoid unnecessary problems and complications:
  1. Simple trading strategy can be as profitable as some really complex systems. By keeping your strategy simple you make it easier to follow and execute it. Adding complexity in the future can be your next level, but trading with a simple strategy is a very good way to start trading on Forex for real.
  2. Try to follow a simple money management system — trading with a fixed percentage of your account equity is easy and effective. Martingale system isn’t simple and leads to losses. So, with money management simple is almost always good.
  3. Fundamental analysis is a nice tool, but it’s better to avoid reacting on all fundamental news you hear. Keep it simple — select only really important releases or indicators and monitor them when you trade.
  4. One of the best ways to simplify your Forex trading is to hold the open positions for a fixed amount of time. This way, your positions are limited not only with the stop-loss and take-profit levels, but also with the time limit. I prefer limiting them to 30, 60, 360 minutes and 1 week periods, depending on the particular strategy.
  5. Try not to trade on currency pairs with the base currency different from the one, in which your account is founded. For example, if you trade USD/JPY, while your account is founded in USD, your profit or loss can’t be adequately measured, because it inversely depends on the USD/JPY rate.
  6. Look for a Forex broker with the fixed spreads, because trading with the variable spreads can’t be easy. You can’t rely on your strategy, especially if it’s a short-term strategy, if you don’t know the spreads values for sure.
Some traders adore simple approaches to the market, while others hate everything that’s easily understood by high-school graduate and prefer complexity. If you think that you are the one from the first group, then this list will probably help you. If you know some other ways to simplify Forex trading, please, leave a comment to this post.

Must-Read Books of Forex Trader

Monday, October 13, 2008
Knowledge can make miracles happen, especially when you endeavor to succeed in the Forex market trading. And what is the second best source of knowledge (with the first best being your experience)? Books! Learning to trade is an easy, interesting and organized process, if you study the right books. Here is the list of the trading related books that will help you develop your skills and increase your confidence in the markets:
  1. School of Pipsology by BabyPips.com — it is the best Forex trading study manual as of now. And it’s also completely free. It’s written in a very easy language and offers a lot of explanations that are vitally needed by the beginning traders.
  2. Reminiscences of a Stock Operator by Edwin Lefevre — this book is based on the biography of the legendary stock trader Jesse Livermore, who is often seen as an icon of the financial trading success. It’s a good half-fiction read that will provide with some interesting thoughts on trading.
  3. Emotion Free Trading by Larry Levin — Forex trading is a very stressful activity with a huge part of your success depending on your emotional control. This book will try to teach to control your good and bad emotions and trade based solely on your strategy rules.
  4. Trade Your Way to Financial Freedom by Van K. Tharp — the author of this book is a financial genius, whose developments in the money management of the financial trading can be applied in any market and will open your eyes on some aspects of the money management that are usually hidden from the beginning Forex traders.
  5. Position-sizing Effects on Trader Performance: An experimental analysis by John Ginyard — it’s a pretty long scientific paper that describes and analyzes the experiments on position-sizing effects. If you lack the hard evidence of the most common money management rules — read this and you’ll have it.
There many other interesting books that are worth reading if you are seriously trading on Forex or any other financial market. But these listed are the marvels of the trading literature, in my opinion. If you don’t have enough time to read them all, try to read at least several pages of them and, probably, you’ll find them to be more important than something else.

Disadvantages of the Automated Forex Trading

Thursday, October 9, 2008
In my last post I’ve described the best advantages of the automated Forex trading. But, of course, I understand that the trading using the expert advisors isn’t always something good. Everything has its own pros and cons; so the automated trading has its own disadvantages and I’ll try to describe them in this article:
  1. No intuition to help your trading. Computers and programs simply don’t have anything similar to that mystical human feeling. While some traders don’t think that the intuition can be helpful in trading, others rely on it — such traders probably won’t be pleased with the automated trading.
  2. Smooth trade execution and uninterrupted run-time of the expert advisors is critical with many trading systems. Unfortunately, it’s something very hard to achieve running EA from your home or work PC. That means that you’d require some dedicated server to run your automated trading.
  3. Some types of strategies are simply impossible to implement into the real expert advisors. The chart pattern or wave analysis and fundamental analysis are extremely hard to code in the trading program. At the current level of the AI development these tasks are better performed by he live trader manually.
  4. The expert advisors should be made quality or otherwise their trading results will disappoint you. Unfortunately, not all expert advisors handle errors and other unexpected events correctly — sometimes this can lead to the huge losses. Moving your working EA from one broker to another can also be a problem, since broker servers differ and what works perfectly on one broker can stop working on another.
As you see, nothing is perfect in this world and, while being the extremely interesting and popular tool, automated Forex trading has its own problems. The wise decision here, in my opinion, would be using both types of trading to your advantage. The systems that can be easily implemented as the expert advisor and are too hard to be traded manually are better to be automated, while the simple systems that involve chart pattern and fundamental analysis are better left for the manual trading.

Advantages of the Automated Forex Trading

Monday, October 6, 2008
Trading with the expert advisors is seen by many (especially newbie) traders as the «holy grail» possibility. Such traders expect from each EA they find or buy the fast and risk-free profits. Of course, expert advisors are not the «holy grail» in Forex trading. Automated Forex trading is just another tool that can make the trader’s life a bit easier and sometimes even more profitable. Here is the list of the advantages of trading Forex with expert advisors:
  1. With expert advisors you can trade during the time you can’t trade manually. You can set up an expert advisor to trade for you when you are asleep, when you are away or when you are too busy to be involved in the market. Of course, you can hire someone else to trade for you, when you are away, but that’s rather ineffective decision.
  2. Strict following the trading system is another advantage of the automated Forex trading. If you have a strategy implemented in the expert advisor it will trade according to that strategy without any deviations. If you find it hard to follow your own system without modifying it constantly, try using an EA that would do all the work.
  3. Automated trading excludes any emotions form your market behavior. Computers and programs don’t have any emotions and won’t overtrade if they lose. If you are not very good at holding your emotions down, automated trading will definitely help you.
  4. Complicated strategies are not a problem for the expert advisors. For the live trader it’s not an easy task to monitor a dozen of indicators and compare each of them to the entry conditions, whereas expert advisors can do that easily and in no time at all.
  5. «Errare humanum est» said the Roman stoic; that means that despite your experience in Forex trading, you’ll make a lot of stupid mistakes through your trading career. Computers are not human, and if programmed without errors, expert advisors won’t make any errors during the trading.
  6. There are many things a live trader just can’t do — trading on multiple strategies, timeframes and currency pairs simultaneously is one of them. If you want to use your system on several currency pairs and timeframes — use expert advisor. If you want to test several systems at the same time — also use the expert advisor.
  7. The time of reaction, analysis and decision making can be critical in many Forex trading systems. Where manual trader just can’t do it fast enough, automated systems will work fine.
Perhaps, I’ve missed some important advantages here, but this list looks quite impressive to me. Of course, there are certain disadvantages in the automated Forex trading, but they will be a subject of my next post.

Forex Resources for Daily Monitoring

Monday, September 29, 2008
Even the best Forex traders need to regularly refresh their knowledge and gain new information that is related to the currency trading. There are on-line Forex resources that provide information, news, books, communities, tools and other important advantages to the traders for free. Here is the list of the most useful Forex resources that are worth to be visited daily by every trader:

Bloomberg.com — business and currency news that create the fundamental background for the Forex market. I prefer to browse these news everyday before making any trading decisions.

Forexfactory.com — apart from the usual Forex tools, there are forums that are actually visited by many new and professional traders that share their experience with different trading systems, Forex brokers, expert advisors, etc.

Forex-tsd.com — a large Forex community focusing mainly on the technical tools for trading — such as expert advisors and indicators for various platforms (usually, MetaTrader 4).

Earnforex.com — a lot of useful and free information for all Forex traders, including books, brokers’ descriptions, reviews, articles and other goodies with the new updates almost everyday.

Talkgold Forex Forum — a very popular forum in the past, it still remains a place where many «old school» Forex traders share their knowledge and discuss Forex related issues.

Those are the resources that I visit everyday. If you know some other popular and useful sites for the Forex traders, you can mention them in the comments to this post.

The Less Known Evil of the Leverage

Thursday, September 25, 2008
Trading with leverage is extremely popular among the Forex traders. High leverage is considered dangerous because of the risks associated with the fast moving money and poor money management tactics practiced by the majority of the traders. Besides the well known danger of multiplying your losses, there is another evil hiding behind the leverage, which can wipe your trading account easily.

High leverage is advertised by many brokers. Some traders believe that the higher their leverage is the faster they will become rich and the Forex brokers that offer ridiculously high leverage are even praised. But in fact, there is a very practical and mercantile reason for the Forex brokers to offer high leverage — higher earnings.

The higher is the leverage the more money is paid by the trader to the broker in the form of the rates spread. The value of the pip that trader wins, loses or pays as a spread depends on the leverage. With 1:100 leverage a 2 pips spread for the 1 standard lot of the USD based currency pair is worth $20. That’s not a big amount if you have $100,000 account, but if your total trading account is just $2,000? That’s 1% lost despite the fact if you win or lose this position. With 1:10 leverage that spread would worth you only $2. Without leverage the spread payment to your broker would be as low as 20 cents.

Remember that the leverage comes with a price, which is quite high and which is often overlooked by the traders. If you want to learn trading profitably on a real account, try to the leverage as low as possible. Switch to the higher leverage only if you really know what you are doing. Don’t try to become rich quick with the help of the leverage. It won’t allow you.

Variety of Forex Scams

Monday, September 22, 2008
Apart from being potentially profitable, Forex market becomes more dangerous nowadays. There many scams in the Forex industry and they vary in types and scales. If you want to start trading Forex you should know a lot about such scams to avoid losing your hard-earned money. And if you are the experienced Forex trader you’ve probably already got hurt from some Forex scam and if not — you should also know about Forex scams to avoid them in the future.
  • Forex broker scam. It was very popular several years ago, but its popularity seems to fade now. Usually it’s just some set-up Forex broker site that promises the good trading conditions and offers some basic «bucket-shop» trading simulation to attract large customer base and run away with their money. Just do your research on a broker before depositing money and you’ll be safe from such scams.
  • Forex strategies selling. There are hundreds «successful» Forex trading strategies selling on the Internet. Many traders tend to believe that they can spend $300 on such a strategy and become rich with it. In reality the best thing that money can buy is education. Sold strategies are usually nothing but crap. Not only they won’t make you rich, they will probably make you lose your account margin.
  • Forex e-books selling. Overrated and hyped e-books with a lot of marketing and a little use (if at all) are the actual problem of many industries. Forex e-books selling for ridiculously high prices and promising to tell you «the best kept secrets of the millionaire traders» are nothing but wasted money. You’d better lose that money in Forex trading, trying to find your own strategy and getting some real practice.
  • Scam Forex managed accounts. Some people like the idea of Forex, but don’t like to trade on this market, they prefer to invest in it. That’s where managed accounts come to play. It’s a good idea to have some company or a private trade to trade for you and earn a share of profit. But unfortunately there also scam players here. They will just take your money and disappear. Some scam managers will probably even pretend that they are really trading and will show you some profit, hoping that you’ll deposit more. Don’t fall for such scams, thoroughly research your manager or better invest in some reputable managing company.

What's Your Forex Trader's Personality?

Thursday, September 18, 2008
Knowing your trader’s personality is very important if you want to maintain a healthy, pleasant and, most importantly, profitable lifestyle while working on Forex. People are different and what’s good for one can be bad for other. Some trading methods and techniques will work for the certain kind of traders, but they will fail when you try to use them.

The most notable difference between various trading styles is the frequency of trading. Traders that like action and often «want to do something» perform better when they open several positions per day. Those who don’t like the chaos of the daily trading and like to think a lot before doing something will enjoy the profit from a scarcer trading. There are 4 distinct types of the trader’s personalities by the trading frequency:
  1. Position trader — mostly fundamental analysis driven positions that are opened very rarely — only few per month, often just about 10-20 positions per year. This style doesn’t require constant market monitoring and is recommended for the busy people.
  2. Swing trader — trades more often than the position trader, holding his orders open for the days and weeks. Targets and stops are lower than those with the position trading, but there are many trades per year. This is not a day trading, but it’s neither a long-term trading.
  3. Day trader — one of the most popular types of traders. They trade every day, opening several positions and holding them for a few hours to a day. This style requires a lot of market monitoring and will probably fit only full-time Forex traders.
  4. Scalper — this is the most risky and dangerous trading style. Scalping involves holding a position open just for a few seconds or minutes to gain the small profit from each position. There are dozens of trades each day with the scalping. Almost all brokers prohibit scalping. Another problem with scalping is that the major part of the scalper’s profit is eaten by the broker’s spread.
There some other parameters that can be different for various traders, but the main trading style is the basic difference and the trader that is good with the position trading shouldn’t go for the day trading to remain successful. Try to find out your style as soon as possible and stick with it.

Drawdowns and Money Management

Monday, September 15, 2008
No matter how good your Forex trading strategy is, you will lose some of your positions. There is no such thing as a 100% sure win in trading, so eventually you’ll encounter some loss. This is where the money management kicks in and helps you to limit your drawdowns in order to save your trading account from the complete wipe-out.

The problem with the drawdowns is that if you lose 10% of your account you need to recover 11% of what remains to return to the breakeven point. Losing 20% will require 25% gain over the remaining balance to recover. As you see, if you trade with the percentage risks, recovering from losses is much harder if you lose more. Trading with a little risk ratio is a good idea to prevent such problem from occurring. If you trade long enough you’ll encounter the streaks of losing trades — with 10 losing positions in a row and 10% risk ratio you’ll lose more than 60% of your initial balance. But if you trade risking only 3% of your current balance you’ll end up with 26.3% total loss. You don’t need to be a genius to see that it’s a lot easier to recover after the 26% loss than from 60% loss.

Of course, trading with small amounts of your account doesn’t look very promising, because you decrease your potential profit. But believe me, if you somehow lose 70% of your account — and that’s not a hard thing to do if you risk a big part of your capital with each trade — you’ll have to more than double your leftovers to reach the breakeven point. Remember, that all professional Forex traders (and even professional poker players) always risk only a small fraction of their capital with each trade.

Switching to Your Own Forex Trading System

Thursday, September 11, 2008
Before you switch to your own Forex trading system or the one that you’ve bought from someone else, I’d suggest you organizing the process in such way that you’ll be able to keep up with your strategy and track your success honestly. Developing a trading system is a hard process, but keeping to it without falling to emotional trading is even harder. Here is a list of the steps I recommend doing when you find your system:
  1. If your strategy uses technical indicators directly or there are indicators that can help you spot entry/exit points exist, write them down and add them to the chart. Avoid adding indicators that are not used by your system.
  2. Write down and open in your trading platform the timeframes on which your system is tested. Don’t try trading on the timeframes that don’t work with it.
  3. Define your entry and exit conditions — whether they depend on indicators or something else, those should be definable conditions. Avoid using something else except your system’s guidelines in your trading.
  4. Before each trade, calculate the position size depending on the risk that is tolerable with your strategy. This will help you with money management and will save you from overtrading or gambling.
  5. Follow your strategy writing down all your profits and losses. Be honest with yourself. If you avert from your initial strategy, try to record that too.
  6. Keep to your system without changing it for a significant amount of time. Try to see its weak and strong sides when you have enough statistics on your hands.
Over three years that I’ve spent trading Forex I developed many trading strategies. The majority of them were crap, but many of the strategies were unjustly abandoned by me, because I’ve failed to use them correctly — continuously modifying the system, «cheating» myself and forgetting to record statistics killed more than one successful strategies.

Using Support and Resistance in Forex

Tuesday, September 9, 2008
Support and resistance is the one of the most popular and widely used methods of technical analysis in Forex. It’s simple, easy to understand and doesn’t even require any additional analytical tools except the bare chart of the currency pair. Support and resistance levels form when the price action creates the distinct peaks and plateaus on the chart. Support level acts as a barrier for the rate that falls, while the resistance is the level that prevents rate from growing farther. Buying when the resistance is broken and selling when the support level is broken is an easy Forex technique that made thousands of traders rich. If you plan to trade using support and resistance, don’t forget these important facts:
  1. When the support level is broken it becomes a resistance level, the vice versa is also correct.
  2. Breaking the support and resistance levels isn’t an exact math. False breakouts are possible.
  3. Real breakouts are usually marked with a bar closed below/above the support/resistance level.
  4. Check your charts on the different (larger) timeframes. Some important support and resistance levels can only be seen on the long-term charts.
  5. If the rate bounces off the support or resistance that level becomes stronger. The stronger support and resistance level is the more profit can be gained when it’s broken.
Concluding all that was said above I should also warn you that using support and resistance in your daily trading will become profitable over the time as this method requires a lot of real experience and becomes more powerful with each trading success or failure.

Best Market Hours to Trade

Thursday, August 21, 2008
If you want to be profitable in Forex it’s vital to know how to trade. But knowing when to trade is also a very important condition to succeed in Forex. The market behaves differently depending on the time of the day and the day of week. It’s well known fact to the experienced Forex traders that it’s better to trade when the market is busy and it moves in the large and predictable waves. But when the trading is slow and the volatility decreases, the market itself becomes unpredictable and it’s easy to lose your money. If you want to trade when the market is the most active then learn these three simple rules:
  1. There are several major regional Forex trading sessions — Tokyo (0:00-9:00 GMT), London (8:00-17:00 GMT) and U.S (13:00-22:00 GMT).
  2. The market becomes more active when those sessions overlap: Tokyo and London (8:00-9:00 GMT) and London and U.S. (13:00-17:00 GMT).
  3. The trading is more active in the middle of the week — particularly Tuesday and Wednesday. Friday is the worst day to trade.
So, to trade with the best market conditions available you just need to trade on Tuesday and Wednesday from 8 to 9 AM GMT and from 1 to 5 PM GMT. Of course, not everybody can trade during these time periods. In this case, I’d recommend setting up stop and limit orders to catch the most juicy price movements.

Technical Parameters of the Forex Market

Monday, August 18, 2008
The technical indicators of the Forex market don’t take information from the air; they are all based on some of the market’s parameters and the appropriate calculation methods. Each indicator is calculated according to its own rules and there is no need to describe them all. In this article I’ll try to describe only the actual Forex market parameters that can fully describe the technical side of the Forex trading.
  1. Trend — a direction of the price movement. Forex market can be in some kind of trend or go sideways. The trend itself can be measured by its direction, starting/ending point, ranges and the inner volatility.
  2. Volatility — a statistical measure of the number of the price changes over a certain period of time.
  3. Momentum — a measure of price movement strength in a term of pips per tick.
  4. Cyclicality — it’s hard to be measured, but it still exists on the financial markets (and on Forex too) and describes the cyclical nature of some price movement.
  5. Volume — the number of the transactions (price changes for Forex) in a given amount of time.
  6. Support and resistance levels — they can be hard to spot, but Forex market generally bounces off of them or breaks them with a significant price action.
  7. Traders’ expectations — they can’t be seen from charts, but they are the part of the technical picture of the market. Stop and limit orders are the important parameters of the market that should be taken seriously.
Some technical indicators use only one or two of these parameters; very few of the standard MetaTrader 4 indicators use more than two technical parameters. And I don’t know any indicators that are based on cyclicality or trader’s positions.

Forex Leverage and Trading with Margin

Thursday, August 14, 2008
What is leverage in Forex trading? Every on-line Forex broker offers trading with certain leverage, which usually varies from 1:2 to 1:500 with the most popular being 1:100. Leveraged trading is also called margin trading, because you only need to have a margin to back your position while the rest is offered by your broker. Margin trading is considered to be more risky, but it also offers high-yielding opportunity which is sought by many Forex traders. If you trade on Forex without leverage you have to spend a big deposit to open a position — you’d have to deposit $100,000 to open a position of 1 standard lot. When you trade with a leverage you can use just a fraction of that money to open the same positions — the rest of the money is «borrowed» from the Forex broker. That means that with just $1000 and 1:100 leverage you can open $100,000 positions and gain $10 from each pip of difference you gain. Of course, you’ll also lose $10 for each pip if the price goes against you. Remember that your margin goes for margin requirement and is held by the broker for the whole period of time while your position is opened. That means that your available margin on account declines usually by 100% of the margin required for holding the position — e.g. $1,000 for $100,000 position on 1:100 leverage. Don’t forget that your position opens with a little floating loss caused by the broker’s bid/ask spread. That means that if you had only that $1,000 in account your position would be immediately closed out by margin call. So, always remember to keep enough available margin to cover your losses, because your broker won’t be losing its own money, it will close your positions instead, if the free margin level falls critically low.

Examples:
  1. With 1:500 leverage and $1,500 in your trading account you can open a position of 5 standard lots and still have $500 left for loss toleration. But with each pip of loss costing you $50 your position will be automatically closed when its loss reaches 10 pips. After that you have $1,000 remaining in your account.
  2. With 1:50 leverage and $10,000 in your account you open 1 standard lot position and $2,000 from your account goes for margin. $8,000 left is enough to hold 800 pips of loss.
  3. With 1:2 leverage and $100,000 in your trading account you can open 1 standard lot position with $50,000 secured as margin and $50,000 left to tolerate up to 5000 pips of loss prior to margin call.

Managed Forex Account

Monday, August 11, 2008
At some point of the trading experience traders that don’t reach a very successful level with their own skills start to think about using a managed Forex account. Of course, exceptional traders can earn themselves after just a little practice and learning, but for the majority of the beginning Forex participants the frustration of the losses and the inability to learn over a certain period of time leads to the conclusion that they should use Forex account management services. There is nothing wrong with that, but there is something these Forex investors should know:
  1. Earnings may still fluctuate and become losses. When you rely on a managed Forex account the mechanics of your earnings isn’t much different from that when you trade yourself. The traders that manage your account can still experience losses and you may find that your earning is actually negative during some months.
  2. There are many scam-shops in the managed Forex account industry nowadays. With the rising popularity of the on-line Forex trading, the number of the scams in the managed account industry grows exponentially. Try to avoid shady managing companies and sites. It’s always preferable to use the account in the reputable broker with a trading access for the managing side.
  3. The performance of the managed account can be too conservative. Managed Forex trading accounts can turn out to be not as profitable as you might expect. The majority of the account managers use the conservative strategies that tend to protect your assets more than gain profit. So, don’t expect 100% yield in one month or even a year.
  4. Don’t forget about management commission, transfer fees and withdrawal delays and limitations. When you trade with your own money you can do almost everything you want with them at any given moment. When your account is under the management you’ll have to wait before you can withdraw some money or change the management. You tie up your own money with the manager. The management fees can be costly — don’t forget to find out the real amount of money you will give away as a commission to your managing company.
One shouldn’t forget that it’s possible to trade yourself and at the same moment have investments in several of the managed Forex accounts. Diversification is always great and even highly successful traders don’t miss the opportunity to invest into the well-managed Forex accounts.

Pitfalls of the Fundamental Analysis in Forex

Friday, August 8, 2008
Fundamental analysis is widely used in trading for thousands years. In stock trading fundamental analysis of the companies prevails over the technical analysis in the long-term investing. But in Forex technical analysis is more popular, because of the volatile and short-term nature of the foreign exchange market. Nevertheless, fundamental analysis has its fans and many professionals use it to earn profit. What are the common pitfalls that can wipe the Forex trader’s account if he relies on the fundamental analysis?

Relying on a news effect. You can’t rely on the specific news effect that will be caused on a specific currency pairs. For instance, good news on the U.S. economy not always make dollar go up, while bad news not always make it go down. Additionally there might be a very high volatility period after such releases that would make all your fundamental assumptions fails. Although, this is generally true for the U.S. related fundamental indicators, sometimes the same happens with the other currencies and countries.

Intraday fundamental trading. Intraday use of the fundamental analysis is probably something unique to Forex market, but I know a lot of traders that are fond of it. Nevertheless, majority of them fail greatly, because fundamental analysis usually doesn’t work that way. Fundamental indicators set long-term trends and the short-term change they are causing is volatile and unstable, which may lead to the big losses.

Confusing good for currency and good for economy. More than often economic indicators that are good for the currency of the particular country are hurting its economy and vice versa. This happens because weak currency is often a boon the country’s exporting companies, while a strong currency usually hurt the trade balance and the manufacturing industries. So, remember that not all «good» indicator releases are good for the currency you buy

I use fundamental analysis in my Forex trading, but I am aware of its possible problems. If you want to trade using mainly fundamental analysis — then fine, just don’t forget to be careful with this tool.

When Technical Analysis is Your Enemy

Monday, August 4, 2008
Technical analysis is the powerful tool to forecast the price action in Forex market. It’s more popular than fundamental analysis in currency trading and is used both by beginning traders and experienced professionals equally. But is it that cool and omnipotent? There some situation when good old technical analysis can ruin your trading.

News of high importance. When very important news are released with the unexpected outcome that greatly exceeds any forecasts, even the most certain technical patterns get ruined. It’s a real trading suicide to rely on technical analysis in the chaos that rules after such releases. Disaster/terrorism news also tend to affect Forex market in a similar way.

Holidays market. Trading during big holidays (such as New Year and Christmas) isn’t advisable at all. Technical analysis fails there because the volume of trading is extremely low and the market becomes highly unbalanced with large spike movements possible in each direction. Big speculators can forge the market to their own liking during such periods.

Bubble rallies and bursts. When some market gets a hype, it’s hardly obeying common rules of technical analysis. In Forex when some currency goes up like a bubble (recent carry trade hype is a good example) another currency from the pair goes down at the same extent. Trading on sharp rallies can be very profitable, but don’t expect your support and resistance levels to work there.

Remember the situations when playing by technical analysis is dangerous and you’ll be able to apply it only in a friendly environment, where your strategy won’t be hurt by any «force majeure». In Forex technical analysis can be your best friend, so don’t let some circumstances turn it in your worst enemy.

How to Trade Exotic Currency Pairs

Thursday, July 31, 2008
Trading with the exotic currency pairs is less popular than with the major currencies pairs such as EUR/USD and USD/JPY, but the mechanics of trading is the same. Both technical and fundamental analysis works the same for exotics and the same strategies that work for the major pairs can generate signals for the exotic currency pairs. But what to do when your broker doesn’t support trading with the specific exotic pair? Changing broker to open a position isn’t a good idea, but there is a way to trade some pairs on the brokers that don’t have them.

The exotic currency pairs are also often called cross pairs, because in reality they are often nothing more than the derivatives from the major currency pairs. That opens a possibility to substitute such pairs with majors. For example, you want to sell NZD/JPY, but your broker has no such pair, though it offers NZD/USD and USD/JPY. So, all you need to do is to sell NZD/USD and NZD/JPY, the resulting positions will give you the same combined profit as the NZD/JPY short position would give you. Another example: if you want to buy EUR/AUD, but your broker only offers EUR/USD and AUD/USD then you just need to buy EUR/USD and sell AUD/USD. The general rule is the following: to go long on cross X/Y — buy major with X in the first position or sell one with X in the second and sell major with Y in the first position or buy it if Y is in the second position. To go short — do the same but vice versa.

Unfortunately this technique has two important disadvantages:
  1. You can’t set stop-loss and take-profit level like with a single currency pair position. You depend on two positions combined and the majority of the Forex brokers doesn’t support combined stop-losses or take-profits on two orders.
  2. Position size uncertainty makes it difficult manage your risks in such trades, because the base currency for those positions can be different.
If you don’t trade exotics too often and you like your current broker, then you probably wouldn’t want to change your broker to get more currency pairs. But if you open such positions more than once a month then this technique isn’t something you need. In this case I’d recommend changing your broker.

Choosing a Forex Broker

Monday, July 28, 2008
Choosing a Forex broker is an important step to a success in the Forex trading. Whether you are a beginning trader looking for your first broker or an experienced trader seeking to switch brokers, you'll have to be careful in this selection. With the current abundance of the on-line Forex brokers offering dozens of services, bonuses and high quality execution, one need to look for the exact features that would fit his trading style, capital requirements and level of legal regulation. Here's the short list of things for which to look when you choose your Forex broker:
  1. Terms of Service. The first thing at which trader needs to look before joining a broker is its Terms of Service. They should be free from anything that would put trader's money in danger and should give him freedom to manage his account without any serious obstacles. Don't forget to check ToS to know if the broker forbids your trading style - e.g. scalping, news trading, etc.
  2. Trading platform. Trading via a Forex broker with some lousy platform is a real pain for any trader. Check if the broker's platform is good enough (through the demo trading) before registering a real account. MetaTrader 4 platform is offered by many Forex brokers and it's one of the best of the available platforms for the on-line trading.
  3. Regulation. If the broker claims to be from U.S. or U.K. or any other country with high level of Forex brokerage regulation then check the local authorities to see if they are really regulated. Checking offshore companies is almost useless and trading with the offshore broker has its own advantages and disadvantages as well.
  4. Spread. Spread will be your main payment to the broker for using its services. Don't overpay for anything - try to find a broker which offers low spreads. For example, trading with a Forex broker with 7 pips spread on EUR/USD currency pair is really stupid, while the average spread for this pair on other brokers is 2 pips. If you find a broker that offers spreads below average, don't forget to read its ToS to see if there are any hidden commissions in it.
  5. Payment methods. Most of the traders deposit and withdraw their trading funds via wire transfer. But there are plenty of other methods of payment that can be used to trade Forex; PayPal and WebMoney are among them. If you prefer electronic payment systems choose a Forex broker that accepts them.
  6. Minimum deposit. Trading with small amounts of money won't make you rich, but it's a good way to check your broker's real account handling before trading big, so the minimum deposit amount for the Forex broker shouldn't be too high. Some of them accept deposits only from $10,000 and higher - that's not a very good practice, since many traders would prefer trading with just hundreds of dollars before depositing such amounts.
  7. Additional services. Almost every broker offers additional services nowadays. Personally I prefer brokers that allow extra instruments for trading except Forex pairs - like metals, indexes or some CFD. For example, if you trade not very often and prefer long-term trading you'd seek a broker that pays interest on your free margin and offers good interest rate difference payments for your open positions.
Of course, this list is far from full, as there are many other parameters for which to judge the broker and they vary from trader to trader. But you can use this list as a checklist next time you are going to choose your new broker or register with an old one with which you've been trading on demo account for years.

Reacting on Forex News

Friday, July 25, 2008
Trading on the Forex news is a popular strategy that is generally adopted among both professional and barely experienced traders. Apart from the standard high volatility accompanying important economic releases, Forex traders try to earn by predicting the outcome of the news, successfully forecasting the market’s reaction. However there are three important points every news trader should know before reacting on the Forex news:
  1. Generally it’s a good idea to set the entry orders before the actual news release. Use stop and limit orders to make the entry to trigger automatically and at the desired levels even on a very volatile market.
  2. Setting stop and limit orders for entry is a good way to automate the news trading, but it’s also a good idea to stay near your trading platform during the news release. Sometimes the market demands your personal reaction and your own understanding of the current situation to bring you profits and save you from losses.
  3. You should know beforehand if your broker allows news trading. Many Forex brokers forbid trading during the news of the high importance to the Forex market. They can do it either via their terms of service or via some technical obstacles. Some brokers widen their spreads to extreme values during the news, while the others just stop reacting to the trader’s orders. Don’t even try earning from the news trading if your broker doesn’t allow it.
Don’t be scared to trade on the Forex news. It’s a good tactic for every kind of trader and will work on the most Forex brokers. Just try to avoid the common mistakes associated with this trading strategy.

Carry Trade — Why Did It Work and Why It Won't Anymore

Wednesday, July 23, 2008
Carry trade is the kind of Forex trading where low-yielding currency is sold for the high-yielding one and the produced difference between the yields is gained by the trader; usually it’s also multiplied by the margin leverage. So what are the yields of the currencies? Each currency has an overnight interest rate associated with it. If you trade via a broker you buy and sell currencies without a physical delivery, so when you buy a currency you should get paid an interest from a broker, because he gets to «store» and «use» that currency, while you hold the position. If you sell a currency you should pay an interest because you «hold» and «use» the currency you sold, while the position is open. Because in Forex you trade the currencies in pairs you will get the difference between the long currency’s interest rate and the short currency’s interest rate. If you sell GBP/JPY pair and Bank of England’s interest rate is 5.00%, while Bank of Japan’s is 0.50% you’ll lose 4.50% interest on this position, if you buy this pair you gain this difference. In reality, brokers apply some commission to these differences, so you’ll lose more on negative interest and earn less on positive.

These rate differences wouldn’t be so attractive if it wasn’t high leverage that multiplies the gain by tens and hundreds. With 1:100 leverage you get 450%/year holding a long GBP/JPY position. With a higher leverage and a higher rate difference the results are even more impressive. South African rand has 12.0% interest rate associated with it. Buying ZAR/JPY with 1:400 leverage would yield 4600% a year.

No surprise that from 2001 to mid-2007 Forex carry trades were extremely popular. Such currency pairs as GBP/JPY, EUR/JPY, AUD/JPY and NZD/JPY brought thousands percents of profit through the interest rate difference only; considering that those pairs also rose tremendously during that period, such positions made many people rich.

So what happened in 2007 and why carry trade positions aren’t very popular now? Global economy crisis spurred by mortgage lending crisis in U.S. triggered the growth of the global volatility. Central banks stopped raising interest rates and started to focus on growth, while high-yielding currencies started a correction. Higher yields are always associated with the higher risks, so when the global risks increased, the carry traders started to close their positions and spurred a wave of decline on those currency pairs. Currently all those popular carry trade pairs are moving sideways with a little downward slope.

Carry trades didn’t vanish from the Forex market they just became much less popular and no longer last for years. Now carry traders prefer to buy at the local bottoms and hold the pair for weeks or even days to gain their interest rate difference. And this situation will probably last while the global economic growth remains in danger.

3 Advantages of the Long-Term Forex Trading

Friday, July 18, 2008
As a long-standing supporter and practitioner of the long-term Forex trading it's hard for me judge this style of trading objectively, but pointing out the advantages is an easy task in this case. Apart from the obvious subjective advantages that are appealing to the certain features of the trader's character, long-term Forex trading has some features that are good for everyone:
  1. Spread economy. If you trade on the long-term periods you tend to get more than 100-200 pips from every position, if you trade on the short-term periods your trades will rarely go beyond 50 pips in profit. Assume a broker with 2 pips spread and you make 2,000 pips a month with it (more optimism!). With 10 profitable trades yielding 200 pips each you get 2,000 pips of profit minus 20 pips paid in spread to your broker — that's 1 percent. With 100 trades yielding 20 pips each you get 2,000 pips minus 200 pips left to broker in spreads — that's 10 percent.
  2. Resistance to the short-term volatility. Long-term Forex traders don't have to worry about stop-hunting or the intraday spikes. Their positions are safe from the usual daily market volatility. If you trade long-term you always have enough time to change your position's parameters when something important happens.
  3. Long-term trading is simple. To trade successfully on the long time periods you have to forecast the general trend and the possible exit points and on the long-term charts that's not a difficult thing to do usually. And since you trade rarely you won't need to make the decisions too often, while in short-term trading you have to develop the complex strategies to succeed.
I can't make you switch to the long-term Forex trading if you don't like it and the majority of the traders enjoy the short-term trading, but now at least you know the advantages of the other trading style. If you experience difficulties trading inside the day you could always switch to the long-term trading.

3 Advantages of the Short-Term Forex Trading

Monday, July 14, 2008
Trading on the short-term periods at the Forex market is often considered a more popular practice than the long-term trading. In short-term trades your positions usually don't last longer than a day, while in the long-term trading they can remain open for years. Although, I prefer to trade on the long-term charts and hold my positions open for the long periods of time, the short-term Forex trading has its advantages:
  1. You can trade on thousands of opportunities when the currency rates change with a high volatility. You can capture every swing — up or down, trade inside the ranges and channels. Even the sideways market can be traded in short-term. When you trade long-term you miss these opportunities.
  2. You don't have to tie up your funds for the long periods of time. Your margin capital is locked only for the short periods and you can even get it out of the trading account if you really need it and then put it back and continue trading without any problems. In long-term trading your money gets caught into positions for months.
  3. The majority of the Forex trading signals work only for the short-term trading. Usually both technical and fundamental signals are played out in several hours of trading on the Forex market. The number of signals and events that influence currency rates on the long-term scale is really minimal.
This is what you get if you like to trade inside the day and use such techniques as breakout trading, scalping, news trading, range trading and any other short-term strategy. Of course there are also some disadvantages in the short-term trading, but they are not the topic of this post.

Functions of the Retail Forex Market

Thursday, July 10, 2008
Retail Forex market became very popular after the development of the on-line trading technologies. Millions of new traders are attracted to Forex each year. They try to earn profits trading the currencies, developing the new intraday strategies and gaining on the long-term trends. But why does the retail FX market exist? Is it only a way to earn money for the brokers and some lucky traders? Here is the list of some functions — obvious and not — that are performed by the retail Forex market:
  1. Earning opportunity — this is probably the most popular, obvious and important function of the retail Forex market. It provides the earning opportunity to traders, brokers, affiliates, webmasters, marketing companies and a lot of other on-line industries. Without a promise of profits retail Forex market would be limited to a simple exchange of the physical or current-account money.
  2. Extra liquidity — this is definitely a positive function of the retail currency market. Although, not many traders use huge amounts of cash on Forex, the total sum of the money provided by the retail customers adds a good chunk of liquidity to the Forex market.
  3. Extra volatility — a not very positive function at a first glance. Retail Forex market makes the rate movement less smooth and more volatile as the traders prefer short-term trading, which leads to the sharp reactions on the daily news and technical signals. Excess volatility is bad for the long-term traders, but it can be good for those who know how to benefit from such markets.
  4. Social function — many communities were formed around the Forex trading. Traders prefer to get help from other traders and they also like to share the knowledge that is related to Forex.
  5. Technical strategy development — popularity of the Forex trading and especially the on-line and automated versions of this trading led to the creation of thousands of the automated trading strategies. Based on technical analysis some of such strategies can be applied not only in Forex trading but in many other industries.
Of course, this list can't be considered as full and complete, but these functions are the main attributes of the contemporary retail Forex market, in my opinion.

4 Reasons to Practice on Small-Size Real Account before Risking Big on Forex

Monday, July 7, 2008
Practicing on the demo accounts before moving on to the real money trading is an obvious requirement for successful participating on the Forex market. It’s always better to lose virtual money while you are learning new market theories, developing your trading system or improving your practical Forex skills. But is it right to jump from the virtual account to a big real money one when you suddenly realize that you manage to be profitable for a long period of time in your demo trading? Here are some reasons to move on to just a small real account before risking a lot of hard-earned money on Forex:
  1. Real trading is different from virtual, because you get real emotions when you lose or earn money. Trading with $100 on real will get you more real feeling than trading with $10,000 on demo. It’s better to lose $50-$100 to learn controlling those emotions than several thousands dollars.
  2. Know your broker’s real account servers’ behavior. With some brokers virtual trading is smooth and fast, while real account bring unpleasant surprises with order delays, requites, refusals, slippage and stop-hunting. Trading with a small real account can save you big money if you are unlucky to stumble upon a bad broker.
  3. Know your broker’s funds handling practice. Don’t risk depositing thousands dollars before trying small deposits to see how smooth transfers go with this broker. Pay attention to user support if you encounter some problems with the depositing or withdrawing your money. If your broker doesn’t take seriously small money deposits/withdrawals than you should be careful with it, since it may treat big amounts the money in the same way.
  4. Practicing on small real account has another advantage before the demo trading – you get the real rewards when you trade right and you get real losses when you do something wrong. This way you’ll quickly learn to do everything right and won’t be doing the same mistakes again and again.
Demo trading is one of the greatest tools to learn Forex trading, just don’t forget that nothing will teach you better than trading on a real account. But why risk big before being confident in your skills, when you can start with a small-size real account?

The Magic of Moving Averages

Wednesday, July 2, 2008
Perhaps, the first indicator you’ve seen and used when you first started to trade Forex was Moving Average. For me it was that. Moving averages come in several forms — simple, weighted, exponential, smoothed, etc. And they present the most basic way to measure the current trend direction and to spot its change. At a first glance simple moving average indicator looks like a miraculous tool that is easy to use and can tell you where to enter a position and where to exit one. Let’s try to understand this indicator — is it really as good as it seems?

What moving average shows? No matter if it’s a simple, exponential or any other form of MA the only thing it’s showing is the average rate of the currency pair over a certain period of time, hence the name. For example, MA with a period set to 7 on a daily chart for any given bar will show the average price over the previous 7 bars (days). That’s not a magic, right? Various forms of moving average just influence the way to calculate the average value (to make the line look more smooth or sharp, or to throw out spikes), but in the end we get the averages of the previous periods.

So what happens when the current price crosses MA? Faster MA crosses slower MA? 3 MAs cross each other? The cross of the MA and a price or other MA (or any amount of other MAs) is usually considered as the buy/sell signal or at least a partial signal. Why? Because they really show a change in the trend. The problem is that the change could have happened long ago (up to the MA’s period bars ago). When the moving average is crossed by the price chart from below that simply means the current price became higher than the average price for the last N bars (where N is the period of MA) — that’s it and nothing else. If MA with a period of 7 days crosses MA with a period of 14 days from below that means that the average price in the last 7 days is higher than the average price during the last 14 days (the actual trend change here could happen up to 14 days ago). Some strategies employ even 5 moving averages cross — that won’t change the fact that the only thing you’ll know when such cross occurs is the ratio of the average price over 5 different periods.

So is there any point to use moving average? Yes, I think that the moving average is a good indicator, but not as a signal producer or a trend change indicator. What does it do best? It indicates the average price. So, it’s better to use it when you want to know the average price over a certain period. You can compare current price to the moving average to consider overbought/oversold state, measure the volatility comparing the price action with the large-period MAs, use the long-term moving averages as the support and resistance levels (because so many traders and even institutional traders use it in this way), etc.

Maybe that’s not a pleasant thing to know if you base your trading strategy on moving averages’ crosses, but the facts don’t lie and with more trading experience it becomes clear that moving averages can’t do magic and shouldn’t be used as an easy way to create another Forex strategy.

Origin of the Currency Exchange Market

Friday, June 27, 2008
Forex trading has a pretty long history and could be seen in ancient Middle Ages when foreign exchange just started out as international merchant bankers devised bills of exchange, which could be transfered to third-party payments that allowed flexibility and growth in foreign exchange dealings.

The modern FX market is is variable with periods of high volatility and relative stability . By the mid-1930s, London became known as the leading center for foreign exchange and the British pound served as the benchmark currency to trade and was kept as reserve currency.

After the 2nd World War, when the British economy was decimated and the United States was the only country unscathed by war, U.S. dollar ($) became the reserve currency for most of the countries . In turn, the U.S. dollar was pegged to gold at $35 per ounce. Thus, the U.S. dollar became the world's reserve currency.

To execute these goals the IMF uses such instruments as Reserve trenches, which allows a member to draw on its own reserve asset quota at the time of payment, Credit trenches drawings and stand-by arrangements. The letters are the standard form of IMF loans unlike of those as the compensatory financing facility extends financial help to countries with temporary problems generated by reductions in export revenues, the buffer stock financing facility which is geared toward assisting the stocking up on primary commodities in order to ensure price stability in a specific commodity and the extended facility designed to assist members with financial problems in amounts or for periods exceeding the scope of the other facilities.

At the end of the 70-s the free-floating of currencies was officially mandated that became the most important landmark in the history of financial markets in the XX century lead to the formation of Forex in the contemporary understanding. That is the currency may be traded by anybody and its value is a function of the current supply and demand forces in the market, and there are no specific intervention points that have to be observed. Foreign exchange has experienced spectacular growth in volume ever since currencies were allowed to float freely against each other. While the daily turnover in 1977 was U.S. $5 billion, it increased to U.S. $600 billion in 1987, reached the U.S. $1 trillion mark in September 1992, and stabilized at around $1.5 trillion by the year 2000.

Main factors influences on this spectacular growth in volume are mentioned below. A significant role belonged to the increased volatility of currencies rates, growing mutual influence of different economies on bank-rates established by central banks, which affect essentially currencies exchange rates, more intense competition on goods markets and, at the same time, amalgamation of the corporations of different countries, technological revolution in the sphere of the currencies trading. The latter exposed in the development of automated dealing systems and the transition to the currency trading by means of the Internet. In addition to the dealing systems, matching systems simultaneously connect all traders around the world, electronically duplicating the brokers' market.

Advances in technology, computer software, and telecommunications and increased experience have increased the level of traders' sophistication, their ability to both generate profits and properly handle the exchange risks. Therefore, trading sophistication led toward volume increase.

Download Long term secrets to short term trading by larry williams

Tuesday, April 29, 2008



Hey there,

Here we have the Download for Long term secrets to short term trading by Larry Williams
Download Link;

Sorry, Havent been updating the site as much. Infact Im thinking of selling it as im busy with other projects. Let me know if you have an offer for me!
easy-share
Rapidshare
pass: fxebook

Short Term Analysis - Apr 28, 2008

Short Term Analysis - Apr 28, 2008

20080428_audusd_1.gifAUDUSD Analysis.
AUDUSD formed a short term cycle top at 0.9541 and dropped sharply to as low as 0.9290. Further decline to test 0.9220 area to reach the next cycle bottom on 4-hour chart is still possible in a couple of days. Key support is at 0.9205, a break of this level will signal the reversal to the up trend.

20080428_eurusd_1.gifEURUSD Analysis.
EURUSD is now in down trend. Rebound from 1.5554 is treated as consolidation to the down trend. Deeper decline to test 1.5342 (Mar 24 low) support is still possible after consolidation. Near term resistance is at 1.5707, a break of this level will indicate lengthier consolidation and delay the resumption of the down trend.

20080428_usdcad_1.gifUSDCAD Analysis.
USDCAD formed a short term cycle top at 1.0214 on 4-hour chart. Further fall below 0.9987 previous low is still possible in the next several days. Key resistance is at 1.0214, only rise above this level will signal the resumption of the long term up trend.

20080428_gbpusd_1.gifGBPUSD Analysis.
GBPUSD rebounded sharply from 1.9676. However, the rise from 1.9676 is treated as correction to the down trend. As long as 2.0029 key resistance holds, we’d expect down trend to resume and then fall below 1.9599 could be seen.

20080428_usdchf_1.gifUSDCHF Analysis.
USDCHF is in up trend. Further rise towards 1.0600 area to reach the next short term cycle top is possible after consolidation. Near term support is at 1.0300 and followed by 1.0165, as long as 1.0165 support holds, up trend will continue.

20080428_usdjpy_1.gifUSDJPY Analysis.
USDJPY broke above 104.64 previous high and up trend resumed. Further rise towards 107.00 area to reach the next short term cycle top is possible. Initial support is at 103.33, as long as this support holds, up trend will continue.

A Few Tips For Day Trading the Stock Market

Day trading the stock market involves the rapid buying and selling of stocks on a day-to-day basis. This technique is used to secure quick profits from the constant changes in stock values, minute to minute, second to second. It is rare that a day trader will remain in a trade over the course of a night into the next day. These trades are entered and exited in a matter of minutes.

The main question that most people ask when it comes to day trading is simple: Is it necessary to sit at a computer watching the markets ALL day long in order to be a successful day trader?

The answer is no. It's not necessary to sit at a computer all day long. There are a number of factors to consider, but generally the rule of day trading is to trade when everyone else is trading. In other words, trade in the morning.

As with all financial investments, day trading is risky  in fact, it's one of the riskiest forms of trading out there. The stock prices rise or fall according to the behavior of the market, which is entirely unpredictable. Day traders buy and sell shares rapidly in the hopes of gaining profits within the minutes and seconds they own those particular stocks. Simple to do in theory, harder to do in practice.

If you are constrained by a small amount of capital, you may not be able to buy large amounts of a stock, but buying only a small amount can add to the risk of a loss. And, obviously, it is impossible to predict with certainty which stocks will result in profits and which in losses. Even the best of traders must learn to accept both outcomes.

It's also important to know that in day trading, it is the number of shares rather than the value of shares that should be the focus. If you day trade, you WILL face losses, but even for the more expensive stocks, the loss should be marginal, because prices do not usually fluctuate to an extreme degree over the course of just one day.

The day trading industry deals in a large variety of stocks and shares. Here are just a few:

Growth-Buying Shares shares made from profit, which continue to grow in value. Eventually, these shares will begin to decline in price, and an experienced trader can usually predict the future of this type of share.

Small Caps shares of companies which are on the rise and show no signs of stopping. Although these shares are generally cheap, they are a very risky investment for day traders. You'll be safer to go with large caps and/or mid-caps, which are much more secure and stable thanks to a premium.

Unloved Stocks company stock that has not performed well in the past. Traders buy these shares in the hopes of generating profits if and when the stock rises in value. As with small caps, unloved stocks can be a risky choice for day traders.

These examples are NOT your only options when it comes to day trading stocks. The best way to determine which type of stock is right for you is to invest some time for careful research, a knowledge of market patterns, a solid strategy, and a disciplined trading plan.

The key to successful day trading is to be prepared. Know as much as possible about the industry before you begin actually trading. You need to learn to trade ONLY when the market gives the right signals, and ONLY when the volume of activity in the market supports a successful trading opportunity.

A BEGINNERS GUIDE TO FOREX SELF-TRADING

Friday, March 28, 2008
Hey,

Here is one decent article for beginners on self trading in Forex i read at finalsense , Its added in our beginners section. DO leave your comments.



A Beginners Guide To Forex Self-Trading


Frequently Asked Questions

How do I begin? Please give it to me SIMPLY.

1. The best advice on how to learn to trade profitably is to learn from experts with proven track records. Many learning styles are available to beginners at all levels: books, CDs, online courses, group seminars, even one-on-one mentors who will come right your home for a few days. We outline our Forex-Trader picks in Learning Forex Trading. Learning to trade from experts is worth every penny and has saved us untold thousands in mistakes. We would not recommend starting forex trading without any training. It is not hard to learn, nor difficult to trade successfully, but you must first provide yourself with a basic functioning knowledge of 'the game you're in'.

2. While you are learning you will need charting software to practice reading the Market. Charting is an indispensable tool that shows you in real-time data what the market is doing moment by moment and also what the market has done in the past. As you learn to analyze these charts you can determine what trades to enter and exit, where to set your stop losses, limits etc. There are several good charting software services that you can subscribe to online monthly. See our Forex-Trader tested Charting Software picks in Tools of The Trade.

3. Then, to perform your actual trades online you need a real-time 'trading platform' to execute your 'buys' and 'sells' directly in the Foreign Currency Market. You obtain a trading platform from a Forex Clearinghouse that is connected real-time to the interbank market. There are many good Clearinghouses (also confusingly called Brokerage Firms, Market Makers, etc.) that provide you with the trading platform to trade the funds in the account you have opened with them. Before you begin trading your 'real' money, while you are learning, you will practice on your own 'demo account' with play-money in it, which will be provided to you by the clearinghouse you plan to trade through. The contractual relationship you enter into with your Clearinghouse is a very important one because the Clearinghouse you choose determines many trading features and financial advantages to you both as a trader and as an investor. Forex-Trader tested Clearinghouses are reviewed in Tools of The Trade.

We have outlined a Getting Started path with uncomplicated steps. This is the path that we would take if we were beginning trading over again today with 'what we know now'. The products and services we mention in these steps are all ones that we have personally used for some time with consistent success. As always you are free to forge your own path, and if you do, happy hiking. There is a mountain of products and services try out, and if you find ones you like better we would love to compare notes with you.


Explain More About Charting Services

To trade successfully you also must have good charting software and instantaneous data feeds critical to helping you analysis and interpret the movement of currencies moment to moment so you know when/why to buy or sell -- this you subscribe to monthly. You can get a 2 week or more demo to familiarize yourself with one that has the features you like. The costs also vary, and some companies require a year commitment. There are some free charting services offered through the clearinghouses, but they tend to lack the tools to be truly useful. There are also some costly proprietary Specialty Software charting 'hybrids' which are market forecasters tools that look more like video games than charts.

Explain More About How Clearinghouses Work

A good clearinghouse (i.e.. your computer access/link to the live Forex Exchange Market) is the partner with which you trade the money you have deposited with them in your trading account. After trying and demo-ing many we have found a small handful that are truly excellent for the beginner (and continue to be excellent as you grow) -- meaning user friendly, legally accountable to regulatory bodies, and offering fair costs (spreads) for their services/trading software platforms. There still are many worrisome ones practicing in this closing era of unregulated forex trading (new Commodities laws are imminent).

The topic of matching the right clearinghouse for your needs is discussed more in Tools of the Trade, because it depends on a number of factors -- how much you can open an account with, how much the clearinghouse profit spread, what your liquidity needs are, your minimum/maximum stop loss and margin requirements, even where you live and how much time you have to give to trading in a 24 hr. day.

How Much Does it Cost to Begin to Trade?
Learning to trade will entail the cost of books and whatever training method you choose. It will also include a reliable computer with a minimum 128 Mb of memory to run the charting software and trading platform. Ongoing 'costs of operation' include the monthly costs of high-speed internet, charting software, the email forecasting subscriptions -- plan on spending $150./mo. up for ongoing costs.

What about Pooled Clearinghouse Accounts to Trade with More Leverage?

We strongly do not recommend pooled accounts in any circumstance. Perhaps you are considering self-trading a pooled- together family account because it would give you a perceived advantage of more leveraged funds to trade (50:1 up to 100:1 leverage) -- any risks of loss represent a potential risk to family relationships, and for this reason alone we do not recommend aggregating with family or friends.

However much worse are the too-numerous negative experiences of people allowing their investment funds to leave their control to become part of a 'managed' pooled account. Not only is it a very risky investment idea, it is illegal for anyone to 'pool' accounts without compliance with SEC (a USA Securities Exchange Commission) or international equivalent license. Never relinquish direct control over your money/trading account to anyone (i.e.. the ability to make withdrawals, deposits etc. directly by your own authority into your own account).

A good fund manager, if you do choose to go the (legitimate) Managed Account route rather than the Self-Trader route, will make certain you have your own 'segregated account' in your own name in a bank or brokerage firm. These individual segregated accounts can still be traded together as though they were in a single account by a designated trader as long as the clearing house uses a trading platform that allows it. You, as the investor/account holder, have direct access online to your account activity at all times, and direct control over your own account in your own name (just like a bank account). The importance of this, for the safety of your funds, cannot be over emphasized.

Questions From Our Email Inbox

Thank you for inviting people to learn from your experience. I found that to be very generous. I was hoping you may be able to shed little light on just how to go about finding the right currency pairs to buy.

This is where charting software will make it self-evident for you to know what pairs are 'trending'. Technical analysis using charting software: Elliott Wave, Retracements, Fibonacci patterns, short term trending, etc. Good charting software is invaluable! Look at it as one of your 'costs of doing business'.

I have just begun learning how the FOREX works. There are so few opportunities for the lower economic class to achieve financial independence.

It took us a full year to learn to trade forex to achieve consistent profits, but well worth the time and effort. Forex trading can be the great leveler of the self-investor playing field. I and we believe that with dedication to sound, risk-management trading methods you can succeed.

I'm trying to build a financial base, but I just can't find a door in. Is it possible for me to participate directly in the FOREX with smaller amounts - like $1000?

Beginning with $1K. is more of a challenge and more of a risk (but not impossible). $1K represents 1 lot in Forex Trading, and that is the minimum (leveraged) trade that can be made. Perhaps that $1K would be better spent on trading education?

I have participated in Forex 'Games' and other types of online investments that claim to be investing in Foreign Currency (among other things), with returns of 50% a month and more. I actually did get paid. Opinions please?

We strongly urge you to resist any further temptation to send your money away to an investment-type pool (by this we mean do not send your money away to be under someone else's control and in someone else's account). It is unjustified risk, there are much better ways to begin to experience profits from forex trading. Many such online investments have totally disappeared into the Internet ethers from which they came. Typically these investments give no contact information, claiming to be 'offshore', 'for privacy reasons'. They last a few months, their bulletin boards or email newsletters extoll their climbing numbers of 'members' and pay-outs, then without warning their site goes off-line forever. And you never knew who they were that disappeared with your trust and your money or e-gold.

How do you forecast which currency is next in line to increase?

It is not so much that you want to know when any one currency is going up. You can make profits whether a currency is going up (buy), or down (sell). All Currencies are continually rising and falling relative to other currencies, and forex trading is in fact trading one currency relative to another. Good trading opportunities are always present when you know how to recognize them. Technical analysis using charting software, market sentiment, experience will show you which currencies to pair to trade. Forex Trading is a skill of identifying (and acting on) the probabilities.

How do you choose when to rollover or close positions?

Technical analysis using charting software that (when you learn how to identify what you are seeing) depicts resistance levels (how high it will likely rise to) or support levels (how low it will likely stop dropping at). This is helpful for determining whether to rollover the trade for a bigger forecasted profit the next day. However, a rollover does have additional clearinghouse fees attached. Quick in-and-out trades are closed intentionally with the goal of a smaller profit gain (such as a 4 pip profit).

For example, Beginners, who are learning to read their charts, can do very well closing positions at whatever point they have gained +4 pips profit. This represents a $40. profit (in this example we are trading 1 lot Euro/USD, so 1 pip equals $10.). A $40./4 pip gain is a relatively small move on the chart and may not seem impressive until you consider that If you do this successfully 4 times a day you have made $160. profit. With 4 such daily trades in a four day trading week you will have made $640. (consider also that this is even without the magic of compounding). We leave the monthly and yearly calculations to you.

What indicators do you utilize?
We have tried everything we could ever get our hands on. Over time we have selected the ones that are most consistent and well suited to our trading style. See our review of different indicator tools in Tools of the Trade. You will develop your own trading style (best times of day, favorite currency pairs, best instinctual moving-average chart pattern etc.). But experience with basic technical analysis using charting software is always the starting point. Then you add forex forecasting email subscriptions, Allan Greenspan's body language (no kidding) etc.

Are there any real time & reliable direct (commission free) market maker entry sites online?

Yes. It is not necessary to pay a clearinghouse (also known as a market maker, or forex brokerage house) an additional 'commission' for self-trading using their platform/services. They are usually compensated in the 'spread' between the buy price and sell price.

Tools of The Trade - Preparing to Trade

This is a collection of Forex "Tools of the Trade" -- products and services that we have found to be the best of all we have tried over many years, and additionally selected because the companies behind them have demonstrated reliable service, integrity and value. They are beginner-friendly, yet offering a growing trader lots of support. Look for the Forex-Trader discounts.

To trade Forex successfully you will need the basics:

1. A reliable, reasonably fast computer, preferably with high speed access to the internet (DSL or Cable Modem for example). An Internet dial-up account or the telephone becomes your back-up should your primary access fail.

2. Good foreign currencies "charting software" with a reliable, accurate data feed so that you can track currency movements in real time and perform the technical analysis necessary to trade effectively.

3. An on-line Forex trading account with a brokerage firm which provides a reliable Trading Platform, fair "spreads", quick execution of trades, good on-line reporting, and excellent customer service.

4. A subscription to at least one Forex Trading "Advisory Service" which provides market overviews at least daily. This gives you the context and overall directions of the market and will greatly assist in your own analysis and decision making.

Most importantly, you will need effective training and/or mentoring to master the techniques and discipline which 90 percent of beginning traders lack. This can be home study via cd's or on-line lessons, classes you travel to, or trainer/mentors who come to you.

1. COMPUTER HARDWARE:
Specially Configured for Trading.

MicronPC

There are many good choices for computer hardware. Over the last 6 years we have come to rely on consumer-poll-leader MicronPC to provide reliable hardware and great customer support. Their technical support is available 7 days a week and 24 hours per day and it is actually quick and friendly. We have made a special arrangement with MicronPC to provide substantial discounts to Forex-Trader referrals. Click the link below to see four configurations with detailed information and directions on how to order and receive a discount averaging hundreds of dollars off the price you would pay if you went directly to the Micron website and configured the same machine.

Telekinetics

Computer Trading Hardware For the Consummate Trader.


This is the Quintessence of Trading Computers.
TriKinetic is the only computer manufacturer dedicated exclusively to building trading computer solutions backed by lifetime technical support for the serious trader for whom downtime is not an option. With over 5 years experience and key relationships with the trading industry players, TriKinetic is a leader in complete 'Plug-n-Trade' (turnkey) trade stations.

2. FOREX CHARTING SOFTWARE

E-Signal

This charting software by Townshend Analytics professional charting software, works with a variety of data sources such as Comstock by Standard and Poors, Infotek etc. We use Comstock data for its Realtick is available by the month, a nice startup cost feature for beginners.

3. TRADING PLATFORMS Clearinghouses Providing On-line Access to the Forex Trading Market.

FXCM - Forex Capital Markets LLC A few the many reasons that we have been with FXCM the longest (and happiest) of the many Trading Clearinghouses we've tried -- they are commission-free and offer individual client accounts which are viewable online, their trading platform has the most efficient execution, with trader-friendly spreads and policies for both beginners and advanced traders with either large or small accounts. With an eye to coming regulations they voluntarily registered with U.S. regulatory agencies to demonstrate client assurance of safety through compliance with Securities rules.

A Word of Experience:
FXCM Charting software is free with a demo or live account, although useful it is not as complete as professional charting software. Also, their 'Mini-Account' might seem like a good start for a cautious beginner, however we have experienced much safer and more profitable trading results by learning to trade on their free demo account then, when ready, going 'live' with a 'full-size' trading account.

4. TRADING ADVISORY SERVICES

Trading Advisors are the esteemed 'Forecasters' of the Forex Trading Industry, experts who predict upcoming market moves based on experience, technical analysis and a host of other indicators.

Forex Advisor - Live Trading Advisory

This advisory service is one we are enjoying more everyday, naturally first because of its value and consistently profitable returns month after month with truly excellent risk management protocols. But also because this system is the ultimate in 'live coached trading'. This advisory teaches you risk-safe, consistently successful, profitable trading strategies -- one live session at a time.

A professional trader does all the analysis and posts charts and how-tos online on a leading edge proprietary Live Trading Platform while calling real-time trades with specific entry, exits and stop loss points.

Max's Forex Trader Advisory

This twice-daily Trading Research email advisory service heralds the opening the European Trading Market and later in the day the opening of the Asian Trading Market with market analysis, related insights, movements to watch for, and trading suggestions. Written by Max, the esteemed forex trader from New Zealand, whose passion for, and intimate knowledge of the foreign currency exchange is a good marriage.

SPECIALIZED TRADING ANALYSIS SOFTWARE

Nostradamus
An intriguing 'Wheel of Fortune' compass design displays and forecasts the trends, reversals, etc. of the forex market via sophisticated algorithms. It gives clear buy and sell signals, and continuously displays its trading profit history related to its predications. Subscribe to it monthly per currency pair, or subscribe to all currencies.