Tag: Forex Trades

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Beginners Forex Education Forex Basic Strategies

What Lot Sizes Should I Be Trading?

If you are a novice in the Forex market and you don’t know exactly what a lot on Forex is and what this is all about, in this article I will show you what it is and how to know what amount you should use or what amount in lots you should use in your […]

If you are a novice in the Forex market and you don’t know exactly what a lot on Forex is and what this is all about, in this article I will show you what it is and how to know what amount you should use or what amount in lots you should use in your […]

If you are a novice in the Forex market and you don’t know exactly what a lot on Forex is and what this is all about, in this article I will show you what it is and how to know what amount you should use or what amount in lots you should use in your case to trade on Forex.

What are Pips and Lots?

The first thing to understand is that pips and lots are two concepts in the currency market that are related when calculating gains or losses in a move that can make a quote for a currency pair.

The pips measure how much the currency varies and the lots measure how much you buy or sell from that currency crossing. That’s why the more you flow in pips and the greater what you’ve bought or sold the more it will affect your account.

How many units make up a Forex lot

When you trade in the currency market you do it as if it were in a pack. What does this really mean? A lot is 100,000 units, so if for example, you make a purchase in the pair EUR/USD of a lot, you are performing an operation worth 100,000 dollars. This type of trading can be done even with much less money in your account, as brokers offer leverage for it.

What is a Micro Lot and a Mini Lot?

You must be thinking that leverage and $100,000 doesn’t sound very good to start with. Definitely not. Therefore, it is possible to do it for the minimum possible and that is where the mini lots and micro-lots come in.

Mini lots are one-tenth of a lot, so if a lot is equal to 100,000 units, when you operate a mini lot in EUR/USD you do it for $10,000. Okay, this is something else, but what if I want to do it for less? Is it possible? Indeed, there is also the possibility of a micro lot, that is 1,000 units. Following the example above, 1,000 dollars.

How to Calculate the Value of a Forex Lot

Understood all these now I will explain how you can know the value of a lot in a currency and how it will affect your account every change that occurs in the price.

Step 1: Choose the currency pair. GBP/JPY.

Step 2: Calculate how much a pip is worth. In most cases, the pip at a crossover is the fourth decimal. In the crossings with JPY is the second (yes, I have put it on purpose for you to learn it well).

GBP/JPY is currently listed at 175,150

If GBP/JPY moves and its price goes to 175.170 there will be two pips varied (175.170 – 175.150).

How much is this variation in my account with a micro-lot?

1000 units * 0.02 = 20 yen.

Step 3: Calculation in your currency. How much does this mean if your account materialized in dollars? We just need to do a conversion by looking at the USD/JPY rate, which currently stands at 107,750. Thus, if one dollar is equivalent to 107,750 yen, 20 yen is equivalent to 0.18 euro.

That is, the change of two pips in our account implies a variation of 18 cents.

Can we give another example for the classic EUR/USD?

Step 1: we have it, EUR/USD.

Step 2: Suppose EUR/USD varies from 1.12500 to 1.2490.

We have mentioned above that in most pairs a pip supposes the minimum variation in the fourth decimal place. This is the case, a drop in the price of the pair of 10 pips or 1 pip.

If in this case, you have bought a mini lot (10,000 units):

0.0001* 10,000 =1 dollar per pip.

You’d be missing a dollar more commissions in this scenario.

Step 3: What if your account is in euros?

1/1.12500 = 0.88 euros. It would vary instead of one euro, 88 cents.

Just as we have calculated the value of one pip in this last case or two in the previous one, we can do it for 100 or 200 and so depending on the entry price and stop calculate what is the maximum you can lose or win in each operation. Easy, isn’t it?

Online Calculator

All right, Ruben. I have understood everything, but I find it a drag to have to be doing these calculations to be able to calculate the potential gains and losses in each operation. Relax, I have a solution for you, here you have a calculator where to do all this in a simple way.

Just choose the currency of account, the balance (use equity), the percentage that you are willing to risk, and stop-loss in the currency crossing you have chosen. From here the rest calculates as you will see automatically.

Commission Per Lot on Forex

You know how lots and pips work in the currency market. I have previously told you that brokers allow leverage so in Forex you will be able to move more amounts than you have in your account.

First, you should be very careful with all this talk. Leverage generates greater potential gains, but also potential losses that can end your account. Now, leveraging here in a controlled manner is another matter. Why does the broker allow you to beat yourself up and move more money than you actually have? Because he’s interested, that means more commissions for him. At times when there is more volume on the market, the more money you will receive for it. Even with all this, I have to tell you that competitive brokers allow you to move up to $100,000 by paying only $7 in commissions. The cost is relatively low for financing the operation.

I recommend that you practice all this in a demo account so that you do not have any doubts. The above calculation can help you do your calculations, but it’s OK to start doing it yourself manually and then check if it’s OK. Also, as you learn and progress my advice is that you can automate all this so there is no miscalculation. Remember that every failure here costs money.

In the end, you have already seen that this pips and lots is not at all complex, everything is in standing with attention to understanding how it works and making a couple of practical examples like these.

Categories
Forex Trade Types

Taking Profit in Forex with Dynamic Stop Losses

Many traders will agree with me that one of the most difficult things in Forex trading is the placement of Stop Loss and the levels of take-off. Much of the educational material for learning foreign exchange is focused on how to find the right spot to place an operation.  While it is true that the […]

Many traders will agree with me that one of the most difficult things in Forex trading is the placement of Stop Loss and the levels of take-off. Much of the educational material for learning foreign exchange is focused on how to find the right spot to place an operation.  While it is true that the […]

Many traders will agree with me that one of the most difficult things in Forex trading is the placement of Stop Loss and the levels of take-off. Much of the educational material for learning foreign exchange is focused on how to find the right spot to place an operation. 

While it is true that the entry point is very important, the management of a good trade -that is, the good use of the Stop Loss and the levels of profit taking, changing these levels appropriately as the operation progresses- is equally important. It is quite possible that, even if you get the tickets right, you will lose money in general. Assuming you have a good entry strategy, how can you exploit it to the fullest? Is there a better or more dynamic methodology than just placing a Stop Loss and profit-taking levels and forgetting? There is, although this may be a challenge as the “place and forget” methods are psychologically easier to implement.

This is as important as the analysis one would make before opening a position. In this article, we present a brief guide on how to make the placement of the Stop Loss and the levels of making profits.

Stop Loss (SL) or stops is defined as an order you say or send to your Broker telling you to limit losses in an open position (or trade). Taking profit (TP) or target price is an order you say or send to your Broker, informing you to close your position or trade when the price reaches a specified price level on the profit. The right place for the Stop Loss and the profit-taking levels are of a static nature. In other words, orders are activated (and their operation is closed) when a security value reaches a specified price level.

Dynamic Stop Loss

It is a good idea to never operate without a hard Stop Loss, for example, that is properly registered on your broker’s platform for execution unless very small position sizes. This is an essential point for controlling risk in Forex operations. Imagine the Trade without a shutdown, which could potentially drain your entire capital. Similarly, imagine that you don’t trade without a target price, which basically exposes your entire account’s equity to market fluctuations.

The Stop Loss can be dynamic, as a way to ensure profits in a transaction that progresses in a profitable way. However, the Stop Loss should be moved only in the direction of reducing losses or blocking profits. This way, a trade with good performance will end up giving benefits. This is of course an excellent way to leave an operation ends with a “natural death,” rather than aiming for profit goals that can be very difficult to predict.

An example of a dynamic stop loss is the Trailing Stop. This can be placed on a certain number of pips or based on the average measure of volatility. This last option is the best. Another example would be to move the Stop Loss level periodically so that it is ahead of the main maximum or minimum or other technical indications. The advantage of this is that the operation is kept alive as long as it performs well. When a long operation begins to break through the key support levels, then this type of Stop Loss is hit and ends the operation. This method is a way to let the winners run and stop the losers in their tracks.

Dynamic Profit Taking (Take Profit)

First of all, it is worth asking why you should use Take Profit in Forex. Many traders usually use them instead of moving the Stop Loss and letting the operation end up that way, for the sole reason that the latter method means they always give up a little floating profit. But why cut a short winner? You might think that the price will be directed only at X level but, what if it actually goes ahead? If you list your last hundred operations, I will almost guarantee that you will see that the use of some kind of Stop Mapping would have generated more profits than even your wisest Take Profit command application. Of course, if your style of negotiation is very short-term, profit-taking orders make more sense. However, if you let winning operations run for days, weeks, or even months, then taking profit really does nothing but exacerbate your fear and greed.

There is a possible compromise. You may want to use dynamic pickups set in locations relatively far from the current price, which could be reached by, for example, a sudden news spike. This could get you some nice benefit at the peak, and allow you to re-enter at a better price when the turbulence passes. This is the most suitable use of Hard Take Profit commands within “non-scalping” negotiating styles.

You can also use the soft profit taking levels if you manage to see the price make a good end long candle. Such candles can often be good points for quick departures and reentry as described above. Note, however, that this tactic requires real skill and experience to be used in Forex markets, being a dangerous path for novice traders.

The Trading of Darwin

Charles Darwin’s theory of evolution suggests that the fittest elements within a species are more likely to survive. We can all see this when we plant plants in a garden. Usually, the baby plants that look stronger and taller are the ones that eventually become the best specimens. Skilled gardeners will remove diseased and weak plants and leave the strong ones to grow and harvest when they begin to die. Profitable forex trading is known as “Darwin trading” can be achieved in exactly the same way, by using a combination of soft and dynamic stop loss plus take-profit orders to effect pruning and harvesting, cutting down losers, and letting the winners keep running. A Stop Loss that results in profits can be called a take-profit order when you think about it.

Case Study

In Darwinist operations, the strongest operations survive, and the weakest artists are sacrificed. We can show how you can improve results using “Darwin trading” techniques using the last three years of the EUR/USD currency pair as a case study. 

Long operations began when a fast exponential moving average crossed a slow simple moving average in the hourly graph, considering that all the higher time frames were also aligned (up to and including the weekly time period). An initial hard Stop Loss equal to the 20-day Average True Range was used.

The results of the tests were very positive: of a total of 573 operations, 53.40% reached a profit equal to the hard stop loss and 25.65% reached a profit equal to five times the hard stop loss, before arriving at the hard stop loss. These results clearly show why it is much more profitable to let the winning operations run.

Now, let’s analyze the number of operations that showed benefit 2 hours after entry. Only 48.31 percent of operations fit this category. However, if you look at all the operations that finally hit five times the hard stop loss, you see that 57.44% of these operations made a profit 2 hours after the entry. Five times the average real range is well beyond the average two-hour volatility, so there is an impulse factor.

Categories
Forex Trade Types

Types of Orders in Forex and the Stock Exchange

While some traders prefer to work with a financial advisor who invests on their behalf, other traders choose to take a ‘do it yourself’ approach, buying and selling their own shares or trading. That’s probably why you’re on the professional trader website. However, as you know if you’ve ever tried to buy shares, there are […]

While some traders prefer to work with a financial advisor who invests on their behalf, other traders choose to take a ‘do it yourself’ approach, buying and selling their own shares or trading. That’s probably why you’re on the professional trader website. However, as you know if you’ve ever tried to buy shares, there are […]

While some traders prefer to work with a financial advisor who invests on their behalf, other traders choose to take a ‘do it yourself’ approach, buying and selling their own shares or trading. That’s probably why you’re on the professional trader website.

However, as you know if you’ve ever tried to buy shares, there are different varieties of stock order types. Some orders are executed immediately; others are executed only at a specific time or price, and others have additional conditions.

The type of order used can make a big difference in the price you pay and the returns you get, so it is important to be familiar with the different types of orders in the financial markets.

Order to the Market

A market order is when an investor to trader requests an execution in the act of the sale or purchase of an asset. While this order guarantees the execution of the order, it does not guarantee the execution price. It will usually be executed at the current purchase (sale) or sale (purchase) price. Investors can give simple or complex market order instructions, which can be accessed by brokers or banks they use to trade.

When executing an order to market, traders have no control over the final price. The execution of the order to market is correlated with the availability of sellers and buyers. Depending on the pace of the financial market, the price sold or paid can vary dramatically from the quoted price. It is also possible to divide market orders. The division of market orders can lead to multiple price points, due to the involvement of several traders in the transaction.

Limited Order

If you want to execute an order at a specific price, you must use a limited order. With a limited order, you will determine a certain price for which you want to buy or sell a value. The order is only executed when it has a buyer or seller who will pay or sell a number of assets for that price.

A limited purchase order is only executed at the limit price or below ( if, below).

Let’s take an example, if a trader wants to buy Apple Inc. for a price not exceeding $200 per share, the investor will make a limited order. Once the share price reaches $200, the order is executed. Although a limited-sale order is similar, it is only executed when the shares reach or exceed the limit price.

Limited sales orders may also have additional requirements such as Fill or Kill (FOK) or All or none’ (AON).

When a FOK is requested, the order is executed immediately or killed completely.

With an AON request, the order is executed or not executed at all. If the order is not complete, the request will remain pending until the order is completed.

This is a brokers’ market makers, that is to say, ALL brokers using Metatrader (that do not tell you stories of liquid suppliers and milongas, at the end of the chain there is a market maker), makes no sense. But I use futures or stocks and ETFs, it is basic in a trading strategy, especially when you make money allocation being CTA. You can’t buy futures from 20 customers and 30 can’t. Can I explain? Or all or none.

GTD (Good till date)

If you want to indicate the amount of time an order remains active, you will want to use a period of validity of the order. For example, a valid daily order (GFD) is an order in which the investor wishes to sell or buy insurance for a certain period of time. Once the trader requests the order, it will expire shortly thereafter during the day. These orders will only be valid during the day they are requested. If current orders are not executed during the day, they are canceled at the end of the trading day.

Investors can also request the cancellation of the order until the deadline is met, which requires certain cancellation criteria to continue indefinitely. Another request option is immediate or a cancel order (IOC) that executes or cancels the order instantly.

Conditional Orders of Exchange

Conditional orders allow investors to set the parameters that trigger execution. These options focus on the movement of prices of securities, forex, CFDs, indices, and other options contracts.

An investor can select trigger values, types of securities, and time limits for the execution of his orders. Now we present some of the most common conditions stock market orders that can be used in trading.

Order Stop Loss

The purpose of a suspension order is to limit the trader’s loss in a transaction. Traders usually apply for “BUY STOP” orders to limit their losses or protect their profits if they have put a short deal. Traders can use a stop-sale order to minimize their loss or protect a profit if they have a SELL STOP.

Some of the most common stop-loss commands include:

Stop Selling Order: The instructions for stop selling orders are to sell at the best available price, once the price falls beyond the stop-loss price.

Purchase Stop Order: Similar to the sale stop order, the purchase stop order is a safeguard to limit a loss. If a trader makes a short, you may want to place a stop purchase order to minimize your loss of earnings.

Trailing stop order: Introducing stop parameters that produce a mobile or drag price is a stop trailing order. Stop Trailing orders can maximize profit when prices increase and decrease significantly loss when prices fall. I don’t like them, but they are.

A purchase order at the market price if touched is an order that requests a purchase at the best available price, or at the “if touched” level. This order is the famous MIT ( Market if Touch) If the price of the value falls at this level, the order will become a market purchase order. While with a market order if touched, the sale occurs when a buyer wants to pay the level of ‘if touched’.

These types of orders are widely used in range break trading, where you enter the market at a high price if a certain value is exceeded. The same but the other way around, but on the short side.

An Order Cancels Other Orders

Investors can use an OCO command when they want to capitalize on one of the two trading options. For example, if an investor wishes to trade shares of ABC at 10 euros per share or shares of XYZ at 50 euros per share, the one who reaches the designated price first will be the one who occurs. Thus, if ABC shares reach 10 euros per share, the order is executed and the order for XYZ shares is canceled.

A bear command is when an investor wishes to send another order once his previous order has been completed. Let’s take an example, if a trader wants to buy ABC shares for 10 euros per share and then wants to place a sales order and make a profit, he would need to complete a two-part order. The first part is a limited order for the purchase of ABC shares at 10 euros per share. The second part would be to sell ABC’s shares at EUR 11 per share. Multiple commands enter the system simultaneously and then run sequentially.

Orders Sensitive to Tick

A tick-sensitive command is an order that is conditional on a tick going up or down. Traders can enter such orders in futures brokers such as Interactive Brokers. An example of this order would be to buy at a downtick at the opening price of the s&P 500 futures.

Conclusion

Before you start trading forex, stocks, futures, or whatever, it’s important to understand the vocabulary of the investment world. Perhaps no jargon is more important than the one surrounding the different types of orders, so I hope I helped you.

Categories
Forex Basics

How NOT to Sabotage Your Own Forex Trades

You are in a trade, you have managed your settings prior to the entry, and everything seems to be running smoothly when all of a sudden the price starts plunging downward fast. The tension may be building up and you are now faced with two options to resolve this situation – you can either get […]

You are in a trade, you have managed your settings prior to the entry, and everything seems to be running smoothly when all of a sudden the price starts plunging downward fast. The tension may be building up and you are now faced with two options to resolve this situation – you can either get […]

You are in a trade, you have managed your settings prior to the entry, and everything seems to be running smoothly when all of a sudden the price starts plunging downward fast. The tension may be building up and you are now faced with two options to resolve this situation – you can either get involved and tweak the settings or stay put and refrain from making any changes. While the fear is usually quite real, there is only one correct answer to this challenge – do nothing.

Even though such manner of conduct may seem to be foolish on the outside, the implications of your actions at this crucial step will inevitably determine the future of your trading. Naturally, this may be easier said than done, maintaining the sense of discipline will turn out to be of vital importance for each trader’s forex career. In this article, you will be able to learn how not to sabotage your own trade and understand why most traders cannot surpass this hurdle.

You may be taking a course with a trading company or consulting with a professional trader with the hope of becoming better at forex, but in the end, no one can constantly be there to hold your hand. We all seek to accumulate as much information as possible and learn about the ways to acquire more pips; however, in order to be an excellent trader, you do need to be an independent one too. Any form of dependence is a prerequisite for failure, which is why the compulsion to make a move in some critical stages in a trade in an attempt to control it can also have disastrous consequences for your trading as a whole. 

The First Step

In order to better yourself and overcome the issue of not finding support within, you firstly need to create a solid, functioning system, which will take over some responsibility off your back and save you from needing to get involved. Unfortunately, many assume that the only effort they need to make is to create a system that will direct the entry and exit points in each trade they enter, yet they easily forget that the whole idea behind creating a system is so you need not worry about these steps yourself. Therefore, once they finally manage to put together an effective system, many traders fail to practice consistency.

If you have already invested time into assembling your own system and you put effort into proper testing, you should know by now that it functions well. Any divergence from what you built is then only counterproductive and will lead to inconsistency and thus disappointment due to failure. This is, in actuality, a key moment where one needs to separate emotions from logic because your decision-making must not, under any circumstances, depend on your feelings.

Impact of Emotions

Emotions can always fluctuate and they are colored by our own prejudiced, biased perspective, whilst a system is a structure that is aimed at navigating through this $4—5 trillion/day market. The system is there to both support you and help you steer clear of letting your emotions get the best of you and your trading. In addition, if you allow yourself to recollect and go back in time mentally, you will probably be able to remember the unfortunate part your emotions had in some important decision-making processes. You may think of all the anger that caused the people you know to utter words that they regretted later in life or the choices they made to stay in bad relationships for too long for example both have to do with one mutual culprit – emotions. Whenever traders allow emotions to rule their critical thinking, they are in fact making themselves vulnerable to misjudgment, subjecting their trades to the impact of the fleeting nature of their feelings.

The only way for any trader to truly feel in control of trading in this market is to make a clear distinction between their emotions and logical thinking. If we allow ourselves to enter and exit trades solely based on how we feel, we are then making vital money-related decisions grounded in our subjective idea of where the market is going to move. This sentiment-governed action is not based on any actual plan or structure, which is why a system is very much needed to bypass the dangers of our human nature. If you have developed and tested one, you have a tool that can certainly work and get you to where you wish to go, unlike this emotion-driven, reckless approach that will undeniably make all your fears come alive sooner or later. 

Doctors cannot carry out surgeries based on what they at first glance believe will happen with the patient or refuse to conduct a proper examination giving in to anger because that patient offended them upon meeting. You will always find these healthcare workers take a look at the blood results and use special medical instruments to assess the situation, leaving their personal opinions behind. Whichever job involving a great deal of responsibility you can think of requires this approach to decision-making, and certainly no doctor, army general, or president will ever allow himself/herself to put the future of people or countries in the hands of a passing sensation. 

Solution for Success

The proposition of action sounds quite simple – choose the one vehicle that will lead you to financial prosperity and leave the emotions out of the equation. Trading psychology is the very essence of trading that you will ever do and is responsible for the success acquired by professional traders too. While systems, algorithms, preferred tools, or charts may differ, the strong sense of what a “difficult” decision looks and feels like is something all experts share. No one can deny that a price spiraling downward brings up a negative feeling, but we can all agree that the only way traders can get to the exit with a smile on their faces is by ignoring that red alert button that is blinking from the inside.  

The battle is simply ever-present and we need to constantly remind ourselves what our purpose is, ensuring the conditions that help us offer our very best. Therefore, in order to go about this sensitive topic carefully and systematically, traders should think of the following steps: first, they should thoroughly develop their own system, which further implies that they should always know when you should enter or exit your trades; secondly, all traders should learn how to recognize the trade that can prove to be beneficial and execute it; last, traders must allow the market activities to envelop naturally without any interference, as it is a display of distrust in one’s own system and inevitably involves a higher degree of possibility to make things worse. 

The last step is of immense importance especially if you turn out to be right because your success in trading should be largely predicted by the efficacy of the system you worked hard to develop. Therefore, if your subjective impression of the current market situation leads to the predicted outcome and you end up being right, it will only give you green light to pursue trading by feel. Such an approach will surely prove to be detrimental to your future as a forex trader largely because forex trading requires mathematical precision that is free of any bias or preconception. The event where the close of your last trade aligns with your fear may even arouse more fear of your system being greatly flawed and that all the work you invested before was all in vain, and this is a vicious circle that can only draw you in deeper and deeper. 

If you are certain that you properly tested out your system, simplify all these steps in your mind and allow the events to unfold naturally. While a series of passing feelings of doubt and anxiety may come and go, the most important step is to refuse to listen and simply follow the process. The key here is to repeat the same steps each and every time, without giving in to the need to execute more control over the trade that is needed. Even if you feel tempted to step in and make adjustments, go back to this list and remind yourself of the ways in which you can help or endanger your trading.

Biggest Trading Mistakes 

Naturally, all traders are prone to making mistakes and these can creep up in a rather subtle fashion. Nonetheless, this does not give any trader the right to evade the educational segment of trading, especially due to the assumption that the job is done once the system is set up. There are a few typical mistakes that many traders make because, in terms of involvement, they often forget that in forex trading less is more. What is more, many traders forget that, apart from the technical aspect and the required precision, the trading is carried out by humans which are simply imperfect beings susceptible to emotional reactions. A number of traders thus only invest in learning about the market and the tools, failing to recognize the impact of their own psychology. 

Intraday trading is a perfect example of how traders easily sabotage their trades because they are pulled towards checking the progression of their trades, which leaves more room for doubt and makes them take action they would otherwise not consider. The best strategy in terms of trading applications and easy access to information is to completely ignore their existence and carry on as if they never existed. While this may seem like a silly idea, you are in fact allowing the market to perform the way it would naturally do on its own. By not looking at the apps and your trades, you are preventing yourself from meddling in and thus making huge mistakes. Professional traders around the world choose to trade just shortly before the close of the daily candle precisely because they understand their human weakness and the need to reduce the risk of doing something they could regret later. 

If they have already made some mistakes or lost more than they planned to, traders also tend to overcompensate by trying to do more than they should. In such cases, traders find themselves trying hard to find trades that would bring their account to where it was prior to losing. This way, traders actually chase losses while unfortunately, more often than not, the whole dissatisfaction with one’s account slowly but surely lures the individual into sinking deeply and fast. The lesson here is that losses are an inevitable part of trading in this market, and, the sooner you learn how to deal with them, the better you will be at keeping your account. Money management is not about compensating for your losses but preventing them. Therefore, the more you try to go back and return what is lost, the greater the chance for amplifying the loss is. 

An essential part of making mistakes such as the ones described above is panicking because traders are generally less likely to make an irrational decision willingly or consciously. Rather, traders are easily pushed into thinking that they better make a move because of the cold sweat going down their necks. This exact way many traders assume that taking money off the table once they start losing many pips is the best solution when, in fact, their accounts would most probably do much better without making this choice. Taking losses is an essential part of trading in the spot forex market and your task is to learn how to process the anxiety that stems from taking drawdown. Many a time, traders cut bait just because they start panicking and particularly as a result of looking at their traders more often than they should. 

On the other end of the spectrum, we have another situation where traders find themselves entering a particularly satisfying trade that is generating a great number of pips. Now, after a 2.5% gain, these traders can start feeling markedly satisfied with this outstanding achievement that they end up not making the crucial decisions that would keep their account safe. At this point, they are probably looking at their accounts, hoping not to fall below their new totals, so they completely disregard their proven system and money management process that they would naturally use under different conditions. What this often means is that these traders would take everything off, admiring the great sum appearing in their accounts, when in fact they would fail to recognize the possibility of the trade moving much further than that. Many experts have shared their past experiences where they missed out on long trades because they feared to keep going once they earned a great amount of money. 

Fearing risk can be a blessing in disguise as much as it can make your worst nightmare real. Therefore, just as we say that one swallow does not make a summer in terms of losses and your account being finished as a result, so we can move towards understanding that one big win cannot possibly imply that a trade is over. Instead of failing to earn a few additional hundreds of pips next time, learn to trust your system to tell you when to exit the trade. As you can exit too early while losing, you can do the same when winning, so the perfect solution for traders to stop doing anything prematurely is to simply allow the system to process information without micromanaging the trade or ignoring its signals. Traders must not, under any circumstances, deviate from their tested, proven systems and accept the imperfection of the human mind. 

Last but not least, among the greatest mistakes made in trading, forex traders increasingly fail because they simply do not understand the concept of playing the long game. Unlike other mistakes listed above, this one implies more of a process than a single mistake one can make in one second. What this essentially means is that earning an impressive percentage of the money you started out with should not make you feel entitled to winning. Many traders often earn great amounts of money quickly, increasing their total unbelievably fast, only to go back where they were in the beginning even more quickly. At this point, after feeling so proud of yourself and after putting so much effort into trading, you end up losing everything you earned, feeling completely shattered. This is such a sensitive spot for many traders because they are incredibly prone to acting impulsively at this stage and the least sensible and rational decisions are made precisely when one starts losing. 

The point after losing is the moment where even good traders need to keep their eyes open and control themselves so as not to let their emotions lead the way. While also common among experts, this issue can be tackled easily just by understanding the relevance of the data you get after a 12-month period. If you have completed the testing process and you are done with demo trading, you should feel pressured to experience wins constantly. Just like currency pairs, our trading accounts naturally oscillate up and down and this is an innate part of the forex market. Even if your account goes down more than you expected, you should aim to stay on the course, understanding the decline as a natural fluctuation. The main idea that you should constantly remind yourself of is that you are playing the long game which requires that you keep the same course as before, maintain a sense of direction despite the passing losses.

The top traders are precisely the traders who can maintain a clear picture of their goals regardless of the short-term losses. The best traders are those who know how not to quit or sabotage their trades by making rash decisions. These are the key points that will either place you among the losing majority or the winning minority. Even if you find yourself slipping in the unwanted direction, you can always consciously choose to correct yourself and return to the course you wish to follow. The winners are also those individuals who know how to recognize and accept that they have slipped because this is the mentality that will propel you, as well as every other trader, towards success. 

Actual Steps to Take

If you are a self-aware trader who understands his/her shortcomings, you are also probably the type of person who is ready to invest in psychological growth. As we have come to witness in this article and in real life too, sabotaging one’s trades often has to do more with discipline than any other aspect of trading, which is why reading useful material on this topic has proved to be extremely beneficial for a great number of traders. Discipline Equals Freedom by Jocko Williks, for example, is an essential read that has helped numerous traders get out of the slump of succumbing to their habits and impulses which often prove to be fairly unhealthy and unproductive. While many people assume that self-help books are light reads that are meant to make you forget your troubles, mindset books such as the one mentioned above are vital educational materials that will surely change your life for the better and thus your trading as well.

If you wish to be proactive and are at the beginning of your trading career, make sure that you leave enough time to set up and test out your system. The internet and various social media outlets provide numerous resources that will help you start devising your own system. Start applying the advice shared online and, most importantly, choose to give yourself the chance to demo test everything you learn before you actually invest your own money. The desire to make money is what we all share, but do not let it get the best of you if you are looking forward to achieving and maintaining sustainable, long-term success in the spot forex market. 

Another important piece of advice to consider is to make yourself aware of your own criteria because you will eventually need to make decisions based on your needs and standards. If you have a list of indicators that you need to use to get a green light to enter a trade, you should not by any means ignore your system and try to take a shorter path. Exercise discipline in every aspect of your trade and do not let yourself sabotage your success just because you are eager to earn more money. Wait for all of your indicators to tell you to proceed and, once you enter a trade, let it run its course naturally. Refrain from giving yourself the chance to check the trades you are in and possibly interfere, whilst nurturing a sense of trust in your system.

Lastly, do not allow yourself to be triggered by passing losses, understanding that your only point of reference should be the number you get upon the completion of a 12-month period. These steps may certainly turn out to be slightly more difficult to follow in real life, yet they are absolutely vital if you are a committed and self-aware trader who wishes to evade the common, repetitive mistakes that make many forex enthusiasts sabotage their trading. 

Categories
Forex Trade Types

What is the Difference Between Orders, Trades and Positions in Forex?

For someone with very little knowledge of forex or trading as a whole, the terms order, trade, and position all probably sound quite similar and may seem to pretty much be the same thing. However, for those of us that have actually traded before, we know that there are a few differences between them. They […]

For someone with very little knowledge of forex or trading as a whole, the terms order, trade, and position all probably sound quite similar and may seem to pretty much be the same thing. However, for those of us that have actually traded before, we know that there are a few differences between them. They […]

For someone with very little knowledge of forex or trading as a whole, the terms order, trade, and position all probably sound quite similar and may seem to pretty much be the same thing. However, for those of us that have actually traded before, we know that there are a few differences between them. They are, of course, all related to actually putting in a trade, but we are going to be looking at the subtle differences between the three terms in order to ensure that you know exactly what people are talking about when they mention these terms.

Orders

Let’s start with orders. By definition, the term order simply means an authoritative command or instruction, and it is very similar when it comes to trading, as we are simply telling the broker what we want. Simple right? Well not quite, as there are actually a number of different orders that you can make, quite a few in fact and some are a little more complicated than others.

The first type of order is simply a market order. This is basically you telling the broker that you want to put in a trade. For the majority of brokers, this order would then be executed immediately and the trade would be put in at the current market price. This works for both buys and sells.

Then there are pending orders. These are orders that you are putting in but asking the broker to place the trade when it gets to a specific price. There are a number of different order types that fall into the category of pending orders, let’s take a brief look at what they are.

Limit orders are pending orders that can be both sell limits and buy limits. The way that this order works is that we, for example, are wanting to buy but the price is moving downwards. We would put in an order for a price that is below the current value. Once the price reduced down to the level that we have set, a buy trade will be placed. The same works for a sell. We place our order at a price higher than the current value, and the price rises and reaches our order price a sell trade will be placed. These work well when placing them on resistance or support levels where you expect the price to reverse.

To recap: A limit order set as a buy will be at a price lower than the current market price will be executed by the broker at a price equal to or lower than the specified price in the order. A limit order set as a sell will be at a price higher than the current market price and will be executed by the broker at a price equal to or higher than the specified price in the order. 

We then have stop entry pending orders. These work in the same way yet the opposite way at the same time. The stop order is basically a stop on the market. A trade won’t be opened until the price reaches that price and once it does a trade will be opened. So it works in a similar way to the limits, but this time when the markets are moving upwards and they reach the stop entry level, a buy trade will be opened in h hope that the price continues to move in the upwards direction. The same for a sell, you place it below the current price with the hope that it will continue to fall once it reaches the stop limit and the trade opens.

To recap: You would place a buy stop at a price above the current market price. When the price reaches the set level, a buy trade will open. For a sell it is exactly the same, you place a sell stop below the current market value and when the price reaches this level a sell trade will be placed.

Trades

Now let’s look at trades. This is quite a simple one to explain. A trade is simply the act of putting on a buy or sell order and executing it. As soon as the order has been executed, it is now a trade. Trades comprise of both buy and sell trades, but buying when you are expecting the markets to rise and selling when you are expecting the market price to fall. You can place multiple trades at the same time, and depending on the regulation, you can place both buy and sell trades on the same pair at the same time. So in short, a trade is simply an order that has been executed by the broker and is now live.

Positions

Positions are a little more complicated to explain, but they are basically an accumulation of all the open trades at any moment in time. Your position is based on the exposure that you have with any given currency within a market. So let’s assume that we are trading the EUR USD currency pair, and we have a trade of 0.01 lots as a buy trade. That is the equivalent of $1,000 on a buy. We place another 0.01 lot trade which makes out a total 0.02 lots or $2,000. Our position is now $2,000 going long. If we were to place a 0.05 lot sell for $5,000 this would give us 0.02 long and 0.05 short, or a total 0.03 lots short, our position would then be $3,000 short.

Your position is basically an indication of how exposed you are to market movements. The more trades that you have going in one direction the larger your position is on that currency pair and so the more open you are to risk and exposure when the markets move.

That is a little overview of what orders, trades, and positions are when it comes to forex trading. Hopefully, this has given you a little insight into their meaning and may have also cleared up any potential confusion that there may have been regarding these terms. 

Categories
Beginners Forex Education Forex Basics

How Many Times Per Day Do Professional Traders Trade?

The forex trading industry is known for 24-hour market access, flexible hours, and many other benefits, but many people avoid trading because they assume that they do not have enough time to dedicate to everything trading entails. Before you decide that your lifestyle simply won’t support a career as a forex trader, you should take […]

The forex trading industry is known for 24-hour market access, flexible hours, and many other benefits, but many people avoid trading because they assume that they do not have enough time to dedicate to everything trading entails. Before you decide that your lifestyle simply won’t support a career as a forex trader, you should take […]

The forex trading industry is known for 24-hour market access, flexible hours, and many other benefits, but many people avoid trading because they assume that they do not have enough time to dedicate to everything trading entails. Before you decide that your lifestyle simply won’t support a career as a forex trader, you should take a look at the three different types of professional traders we’ve outlined and the number of times each trade per day below. The answers just might surprise you!

Swing Traders

Swing traders typically place one or more trades each day and leave them open for a varying amount of time, from several hours to several days. This trading style is considered a short-term to medium-term investment and traders generally use technical analysis to find trading opportunities, sometimes in conjunction with fundamental analysis in order to analyze trends and other data about prices.  

While the exact amount of weekly trades that are put in depends on market conditions, this trading style is considered to be a lower maintenance option as traders can enter positions and then do nothing for longer periods of time. Of course, you’ll still have to keep an eye on important data in order to make smart trading decisions, so you’ll want to invest some time each day or week to take technical and possibly fundamental factors into consideration. 

High-Frequency Trading

As the name suggests, high-frequency traders enter quite a lot of trades per day, sometimes in the hundreds or thousands. It would be impossible for a human to do all of this manually, therefore, algorithms and computer systems are used, with quicker connections being required than those that are typically available to the average trader. This shouldn’t be confused with expert advisors, as these systems work differently. High-frequency trading is most commonly used by larger institutions, like hedge funds and banks. 

Home-based traders that want to practice high-frequency trading without having access to extra technical connections typically place around 20 trades per day manually. This style focuses on making small profits off each trade, which adds up over time. This trading style is best suited for traders that have more time on their hands, as it requires a lot more effort than swing trading. 

Investors

The pattern that investors follow involves holding onto the currency they are trading when it is in an uptrend for weeks or months at a time. In some cases, traders might even hang onto a currency for years! This is because currency pairs typically go through a cycle that lasts 2 to 3 years per trend and investors are looking to capitalize on those moves. 

This trading style requires more patience from the trader, as it can take a long time to reach maximum profitability before you should sell. On the bright side, this is another strategy that doesn’t require constant effort, which means that traders can do it in their spare time or even while working a full-time job. Of course, you’ll want to keep an eye on your trades and pay attention to data that could affect the prices of currency pairs that you are currently holding. 

The Bottom Line

No matter what trading strategy you choose, you’ll need to invest some time into looking at data, reading charts, staying up-to-date on the news, and pouring over other fundamental or technical data in order to make informed trading decisions. If you’re pressed for time, you can always follow a professional strategy like swing trading or investing that does not require a large number of trades to be entered each day. The fact that these traders often hold positions for days, weeks, or years also provides a great deal of flexibility. If you want to go another route, consider high-frequency trading, which involves entering a large number of trades each day in an attempt to make a small profit off each one. This is the most high-maintenance option on our list, but it does offer a good outlook of profitability.

Categories
Beginners Forex Education Forex Basics

How Long Can You Leave a Forex Trade Open?

Who is asking, a trader, or an investor? Do you think setting a time limit for each trade is a good idea? Do you think investors who bought physical gold 10 years ago held it for too long? How about people who bought bitcoin in 2016? Trading is essentially a calculated process that is managed […]

Who is asking, a trader, or an investor? Do you think setting a time limit for each trade is a good idea? Do you think investors who bought physical gold 10 years ago held it for too long? How about people who bought bitcoin in 2016? Trading is essentially a calculated process that is managed […]

Who is asking, a trader, or an investor? Do you think setting a time limit for each trade is a good idea? Do you think investors who bought physical gold 10 years ago held it for too long? How about people who bought bitcoin in 2016? Trading is essentially a calculated process that is managed by a trader’s system, on any timeframe and any asset. A system is a combination of a trading algorithm, various strategies, and one’s approach to trading. The duration of any single trade will need to be a well-calculated decision that will include all of the strategy components, excluding vague and intangible factors such as luck or emotions. Today, we are digging deep into how long a trade should last with an overview of different rules and methods any trader can apply in trading.

System

As we said above, a developed system is an essential part of trading. A trade that is filtered through different indicators will be the right trade to enter, leaving bad options behind. Also, if you manage your settings properly, you will know that your trade will run accordingly – neither shorter nor longer than what you would want it to. That is why choosing the right exit indicator is one of the key steps in assessing how long a trade should last. Reversal indicators, for example, are believed to give reliable exit signals, but the overall duration of a trade depends on other factors as well. 

Risk

Risk management may sound like a complicated word, but it actually serves to protect your finances and prevent losses. Therefore, knowing when to exit a trade will, on one hand, help you with your winning trades and, on the other, assist with managing your assets and your account. There are several fundamental terms that we need to define here to be able to assess how long a trade should last.

Stop-loss & Take-profit Points

A stop loss is a point in the chart where your trade will automatically close down and +. It constitutes an important exit strategy that will handle your trades so that you do not need to sit and oversee what is happening with the market or worry if the price starts moving in the opposite direction. With the use of the stop loss, you will always know exactly after how many pips a trade will close in a loss. When it will happen should not concern you.  When you are in a single trade, your take-profit point will also be the moment where your position will be closed. 

Strategy

Sometimes, depending on your strategy and the platform you are using, your take-profit points are going to differ. If you are using the scaling out strategy, you will take 50% of your trade off the table, for example, and then move your stop loss to the break-even point (the point where you entered the trade). The remaining 50% of the trade will keep going for as long as it needs to, naturally running its course. There is no limit to how much you can gain. Why limit this part anyway, it can last for weeks. 

Traders eager to apply the buy and hold strategy usually decide to hold a stock or commodity for a long period of time, so their take-profit will depend solely on their strategy and plan. However, it is increasingly important for traders never to change their initial plans after entering the trade.

Time frames

Time frames also affect how long a trade is going to last. The daily time frame may be a great opportunity to enter longer trades, but this decision often varies from one trader to the other. Some traders may be driven to use smaller time frames to achieve faster (but smaller) wins. The choice of a time frame is going to depend on the market conditions and one’s strategy as well. Sometimes, when the market is dead and the volume is really low, traders choose smaller time frames for a more aggressive strategy. The decision of which time frame you are going to use needs to be in alignment with other aspects of your trading approach, as it will inevitably impact the duration of the trade.

Market

It is also important to mention how market conditions affect the duration of trades. While a well-tested system is the main way you can protect your account, it may happen that the market is so out of control that your system never recognizes the need to exit. While these situations do happen even to the best and most experienced traders, you can always take additional precautions by not entering trades that could turn out to be a problem. These trades involve all currencies that are heavily affected by the news (e.g. the USD) and all major events such as elections. The USD gets easily triggered by even the smallest pieces of news, such as the President’s tweets. In the midst of the Brexit talks, the GBP was also not the best currency to trade, not just for the problematic exits but the overall market condition as well. Volatility does affect any system if the market gets so out of control and we should, thus, do everything to avoid situations that may keep you in the game too long, thus endangering your finances.

Psychology

Many traders are afraid of making a mistake and losing their money. As a result of these fears, their trading is controlled by their emotions, which can have quite a negative impact on the results too. Sometimes, traders decide to tweak the setting in the middle of the trade and exit the trade prematurely. Other times, they are afraid of risking too much, so they end up underleveraging and making their trade last much shorter than necessary. Anxiety is another reason why many opt for smaller time frames, hoping to be able to exert control better. Traders may even ignore the signals their systems are giving them because they hope that a particular trade is going to trend even better in the upcoming period. Overall, these examples reflect poor trade management and should be handled with care. Each trader has a responsibility towards himself/herself to discover the situations that trigger such reactions and prevent them from happening.

Best Exit Points

The best moments to leave the trade are those that your system gives you. We cannot base our trading on intuition and sentiment because our wins, and losses as well, will then be in the hands of luck. Exit points must be calculated with precision and understanding of why this action is taken at that moment in time and chart. Learning about different strategies and time frames can make this process much easier, along with thorough testing and practice.

Conclusion

With a demo account, everyone can see if every exit indicator used works properly. Backtesting and forward testing will further show if the combination of indicators is giving the best possible results. The only requirement that each trader needs to satisfy is to carry our proper journaling, listing all trades with every entry and exit point. What is more, using a demo account will also help traders learn about themselves because we are often unaware of our reactions when money and security are involved. Since exiting trades is not a matter of how you feel at the time you are trading, you will surely benefit from applying the risk management advice we provided, as it will save you and your account from unnecessary losses, whether they come from staying in a trade for too long or too short.

Whatever you do, do not keep your trades running just because you hope a windfall of money is around the corner. Instead of obsessing about the length of your traders, rather focus on the risk and money management principles that will provide you with the security you may be looking for elsewhere.

Categories
Forex Trade Types

How Many Types of Forex Trading are There?

Even though creating a complete list of forex trading styles is exceptionally difficult, we first need to acknowledge the fact that individual approaches to trading may differ substantially. Some traders will base their strategies on various market conditions and news, whereas others prefer focusing on specific tools that they deem as the most useful to […]

Even though creating a complete list of forex trading styles is exceptionally difficult, we first need to acknowledge the fact that individual approaches to trading may differ substantially. Some traders will base their strategies on various market conditions and news, whereas others prefer focusing on specific tools that they deem as the most useful to […]

Even though creating a complete list of forex trading styles is exceptionally difficult, we first need to acknowledge the fact that individual approaches to trading may differ substantially. Some traders will base their strategies on various market conditions and news, whereas others prefer focusing on specific tools that they deem as the most useful to determine their next move. Today we are going to present different strategies that you may choose to test yourself and attempt to answer the question of how many types of forex trading there are.

Chart Patterns

Chart patterns, which are said to function similarly to Japanese Candlesticks, can be quite useful in trading stocks due to the focus on traders’ sentiment. What traders get from following patterns is the ease of use and the information where the price might go. Some experts advise caution because patterns are typically noticed by a large number of people all over the world, which causes the big banks to react to such concentration. While traders assume that chart patterns are indicative of the price’s direction, it is actually quite the opposite. This strategy is best used when traders decide to go against the flow, as the big banks will take all the orders and then trigger them and whipsaw the price. Traders will know for sure where the price will go only after this majority of traders exit the trade.

Long-term Fundamental Trading

To trade long-term, traders should focus on the central banks whose usual task is to either tackle slow economic growth (i.e. low GDP and high unemployment) or inflation rate (that banks aim to keep under a certain level year after year). Banks often attempt to overcome these issues through the use of monetary policy tools such as cutting interest rates or introducing quantitative easing. To find a perfect match to pair, traders should track the order of events when predicting price movements. When two different central banks announce certain actions that will cause their respective currencies to move in opposite price directions, there is a higher chance that the pair is going to be stable. It is vital, however, to make timely decisions, so it may be wiser to search for opportunities when the central banks have only recently begun moving in the direction of their policies. Besides, traders should also monitor the news from experts and central banks before and during the trade, without letting their immediate online communities affect their thinking. 

Long Swing Trading

Those who already have full-time jobs, plenty of responsibilities in a day, and lack of time to browse for global economy news may find swing trading their ideal option. This particular forex trading style is utilized by traders who aim to profit from price swings. These traders first identify a potential trend and then hold the trade in question for a minimum of two days to a period of a few weeks. To reap benefits from temporary countertrends, traders strive to buy (go long) at swing lows and sell (go short) at swing highs in an uptrend. Since these trades extend to several days or weeks, the use of larger stop losses is increasingly important to address volatility and individual money management plan. Due to numerous fluctuations, such trades may go against the trader during the holding period, which requires that traders be focused on the result, patient, and emotionally under control. Swing trading can be further divided into four subtypes: reversal, retracement, breakouts, and breakdowns that all refer to different changes in the price direction. 

Support/Resistance Lines

Many traders use these lines that provide information on the market and the price. The highest peak the price reaches before pulling back is called resistance, while the lowest point before going back up is support. Traders see the highest point as the surplus of sellers and the lowest drop as that of buyers. Support and resistance are typically traded when the price bounces, i.e. when the price falls towards support or when the price rises towards resistance. Breaks are also frequently traded, so traders often choose to buy when the price breaks up through resistance or sell when the price breaks down through support. Some professionals claim that drawing up these lines leaves much room for variations and that the same information can be accessed by too vast a number of people. Since this concentrated activity easily draws the attention of big banks, the price is often redirected, directly affecting the support and resistance traders.

Scalping

This strategy is an ideal choice for anyone who loves fast-paced trading, finds looking at charts for several hours to be acceptable, and easily makes fast decisions. This technique aims to acquire small amounts of pips as often as possible during the busiest times in a trading day. As such, traders are focused on particularly short gates between the opening and closing of a trade. Traders find this approach attractive due to the fact that the smaller moves occur more often than the larger ones, allowing traders to go over several hundred trades in one day alone without having to think about them the following day. A vast number of small wins, which are achieved through profiting from quick changes of the bid-ask spreads, may quite easily lead to large gains. Traders’ goal is to take advantage of market volatility in this short span of time, opening a position at the ask/bid price only to close it quickly a few points higher or lower. As this technique truly requires a great degree of intense attention, traders need to consider their own personality types, capabilities, and preferences beforehand. 

Buy and Hold

As the name suggests, this strategy entails that a trader buys a currency and holds it for a period of time. Many professionals regard this approach as dangerous and inapplicable to the forex market despite its popularity. The key argument for this point of view lies in the fact that currencies are vastly different from stocks where this technique is used regularly. Buy-and-hold traders show little interest in short-term price movements, using this strategy as a form of passive investment. The focus of these traders’ attention is the fundamental analysis as opposed to technical charts and indicators. As these types of trades may last for several years, traders do need to make a good selection of currency pairs and even take into consideration various long-term fundamental factors described above. As many sources often leave a disclaimer, stating that traders opting for this strategy are doing so at their own risk, traders are warned that strategies like this one are encumbered with a higher degree of risk than some others If applied to cryptocurrencies.

Trend Trading

This trading style has been recognized by most traders are the most useful in generating positive results. As this is a multiple-term strategy, traders take positions at some point in a chart where the trend in question may last for days, weeks, or months depending on the market conditions. In order to get the best results, traders need to think of their risk-reward ratio and include stop-losses in their trades. This type of trading requires that traders develop good-functioning systems they can rely on that can inform them of upcoming trends and protect their investment. While trend trading may test traders’ patience and emotional preparedness, it is a proven method that experts openly praise. 

Naturally, as there are numerous ways to earn a profit, all traders should ask themselves what tool or style they prefer to focus on. There can still never be two identical approaches to trading even if two traders rely on the same strategy because of individual differences. Nonetheless, regardless of the choice of trading strategy, risk management, money management, and trading psychology are vital for any type of trading to provide benefits. 

Categories
Forex Money Management

Tips for Trading Forex with Larger Positions

Thinking of increasing your position sizes to bring in more profits? It’s true that this can help put more money in your pocket but increasing your position sizes also entails risking more money to make more money. Some traders rush to take larger positions too quickly and wind up blowing their accounts because they just […]

Thinking of increasing your position sizes to bring in more profits? It’s true that this can help put more money in your pocket but increasing your position sizes also entails risking more money to make more money. Some traders rush to take larger positions too quickly and wind up blowing their accounts because they just […]

Thinking of increasing your position sizes to bring in more profits? It’s true that this can help put more money in your pocket but increasing your position sizes also entails risking more money to make more money. Some traders rush to take larger positions too quickly and wind up blowing their accounts because they just aren’t ready, and they have issues along the way because they exceed their risk tolerance when doing so. If you want to pull off position size increases successfully, take a look at our tips below to get the best start. 

Tip #1: Check out your Performance so Far 

Is your desire to trade larger justified by your performance thus far? The truth is that you shouldn’t even think of trading larger positions if your account is in the red. If you jump to larger sizes when you aren’t doing well trading smaller ones, can you really expect to make a profit? If this is the case, don’t be discouraged, as you simply need to keep focusing on improving your results or practice on a demo before you start risking more money. On the other hand, if your account is in the green and has been for a while, this is a good sign that you’re ready to move on. 

Tip #2: Try a Gradual Approach

If you’ve determined that your profits prove you’re ready to take on larger position sizes, you don’t want to make the mistake of making a much larger increase all at once. Trading larger means taking more risks and might come with some downsides you didn’t expect. For example, you might start feeling anxious or fearful now that more money is on the line. Or you might find yourself feeling depressed if you take a large loss that you aren’t accustomed to. The best way to do this is to gradually increase your position sizes over time. As long as you’re getting good results and still feeling confident, you’ll know that it’s time to increase the size you’re taking a little more. 

Tip #3: Look at Percentages vs Dollar Amounts

If you lose money, it can be a lot harder to accept if you’re thinking of the exact amount of money you lost in terms of cash. Allow us to explain: if you risk 2% on a trade on an account that holds $10,000, then you would lose $200. If you risked the same 2% on an account holding $100,000, you could wind up losing $2,000 instead. Losing the $2,000 is obviously much more devasting, and this is why you should think of your losses in terms of percentages instead. It’s a lot easier to think of your loss in terms over 2% over the raw dollar amount, so you’ll be less likely to become emotional over it. 

The Bottom Line

Before you even think of taking larger position sizes, you’ll need to make sure that you’re account is making money, rather than losing it. Once you’ve confirmed that you’re ready, it’s best to take a gradual approach to trading larger so that you can ensure you keep a secure profit coming in with no nasty surprises. If you ever start to feel overwhelmed, you might want to stay at the size you’re at or go back to taking smaller trades until you’re feeling more comfortable with the increased risk tolerance. Our final pro tip is to think of your risk in terms of percentages rather than dollar amounts so that you’ll be able to cope with larger losses without feeling overwhelmed. Remember that losses are inevitable, so you’ll need to ensure that you’re ready for the increased risk that comes with taking larger trades.

Categories
Forex Basic Strategies

Trading the USD/CAD Pair with Your Swing System

Forex currency movements may look random but when we take a pair, we can notice statistical characteristics. Your trading system is certainly going to have favorites, simply it will be more successful on some than with other currency pairs. Sometimes if you tweak your system based on narrow pair set backtesting, you may find other […]

Forex currency movements may look random but when we take a pair, we can notice statistical characteristics. Your trading system is certainly going to have favorites, simply it will be more successful on some than with other currency pairs. Sometimes if you tweak your system based on narrow pair set backtesting, you may find other […]

Forex currency movements may look random but when we take a pair, we can notice statistical characteristics. Your trading system is certainly going to have favorites, simply it will be more successful on some than with other currency pairs. Sometimes if you tweak your system based on narrow pair set backtesting, you may find other pairs are not as good. But you should aim to have a universal trading system.

We have presented a few pairs, how and why they might be great for technical swing trading systems as they have peculiarities, unlike some currency pairs that are harder to analyze due to their “ordinary” nature. USD/CAD is one such pair. The USD is the most used currency and has a lot of action moving the trends, traders commonly say it is the currency that drives the bus. This means trends on USD pairs may be suddenly interrupted, false breakouts are often and even president tweets create havoc you simply cannot predict regardless of how good your system is.

Whatsmore, big banks’ attention is on the most traded pairs, and these are, again, the USD pairs. When we mix in the CAD, the United States and Canada are neighboring economies, they have extreme similarities and some professional prop traders even dare to say CAD pairs have made more losing trades than any other major crosses. Still, your system should be profitable here too and you will make a lot of trades on this pair throughout your trading career. So, we go a bit deeper to understand this tricky pair.

In the fundamental articles, you can understand the drivers of the USD and CAD currencies separately. Economies, countries, or currencies that are close, like the AUD/NZD, EUR/GBP, and USD/CAD can be characterized as in positive correlation. Using the basket trading methods, when comparing the currency baskets, traders seek to trade negatively correlated currencies, or when they diverge in value and prioritize them for trading. If history has shown AUD and NZD are mostly positively correlated, some traders will just avoid AUD/NZD pair just based on this analysis. Yet, according to contrarian swing traders, AUD/NZD is the best performing playground for their systems.

USD/CAD pair belongs to this category. When you have economies that run together, you do not have to worry about two event sets for each economy (currency) that may break down your analysis. Also, the news and economic reports are almost copied to Canada from the US. They come out at the exact time and formulated the same way. Non-farm payrolls and employment reports almost always come out on the same day. The importance and effects of these events are widely familiar with traders.

Now, if you are trading on the daily timeframe, the USD/CAD has a “double” event for each currency in the pair on the same day. This means that one candle can be packed with activity. It is suggested that your system should have a 48 hours decision buffer before this event. This means if your system has a signal to enter a trade 2 days before the NFP report or other major event, you should just ignore it. Typically major news events effect is unpredictable, regardless if it is positive or negative for the currency. It is up to the big banks, how and when they will react to this report.

Consequently, this is uncertainty you want to avoid 24 hours before. The USD/CAD pair typically has one candle (day) of calm activity before these reports. So your system or trade will not even have a move to gain from for that day if you have a signal. This is why you should implement a 48 hours rule to avoid trading before the major event for the USD/CAD. It is unlikely your Take Profit target will be reached in one day (Wednesday) before the event. 

One popular research and method that attracts traders is the comparison of the Canadian Oil price with the USD/CAD. The correlation of the Oil price to the CAD can be spotted as positive. When this analysis is carried over to the USD/CAD one could see periods where it holds and other periods there is no correlation at all, be it positive or negative. 

This is easy to test, take a look at the comparison charts. If we compare years, some correlation can be found, but this is not particularly useful to traders. On lower timeframes, months, weeks, daily, correlation is nonexistent. Still, a lot of traders have read some news or articles claiming this correlation, but all you have to do is open two charts. Do this to other CAD pairs or baskets, you will find this analysis does not provide any information you can confidently use for trading.

Similar is for the AUD and Gold, correlation analysis is just not precise enough and not consistent to be useful. As technical swing traders say, you can even ignore every correlation analysis since your system should show proper signals regardless if the correlation truly exists. 

Traders that use higher timeframes than the daily can be classified as investors. They do not trade often, their trades are held for months and are just not what you would define as a forex trader. The investor analysis is heavily fundamental. Does it mean investors’ analysis cannot be applied to day traders? If you are a technical trader, you may ignore long term fundamental analysis right away, if you are open-minded, there are a few tricks some day traders use from the fundamental analysis of the CAD.

From time to time, political events on a smaller impact scale have a critical effect on a currency that just goes unnoticed. In the long term, this can cause a major trend. This trend can be seen on higher timeframes, but your system is probably not accounting for these long periods. According to some traders, movements in the direction of this major trend on the USD/CAD are sudden, extreme in volume, and are very consistent. If you remember the importance of the continuation trades or major trend resume trades, your system should ignore small corrections and take just one direction signals. These signals can be the most frequent type of swing strategy. The weekly chart is the best choice in this case for the USD/CAD, even though it is too high for usual trading. 

Take any of the trend continuation indicators from your system and plug it on weekly. Trade only aligned directions with your system on the daily timeframe and you will notice consistent good trades. After the CAD minister elections in 2015, the USD/CAD took the opposite direction, long direction. Now, regardless of your political affection, trading should not be based on your opinions, ever. If we take economic management knowledge of this particular Canada minister elected in 2015, many would agree he is not the “money guy”. Interestingly, Trump’s election pushed this trend even harder. Trump would want a weaker dollar so this idea is not very logical. However, it was not until the beginning of 2016 the USD/CAD started to correct. 

These continuation trades remained consistent as winners even today in 2020 according to professional prop traders. You can take this tip even if you are a purely technical trader and use the advantage of long term fundamentals that seem to reveal some of the best trades on a not so great currency pair to trade. 

Keep your eyes open for any fundamental analysis or events that are affecting forex in a hidden way. The combination of these and your system will be long term cooperation you will enjoy. If we take the Euro or the EU, for example, many analysts think the union is on fragile legs, any new country to join is a bad idea to them. Well, try to use this information and test it in a similar way using a higher timeframe continuation indicator. Fundamental events or opinions by the investors is not always beneficial, so you will have to test as always. Note that you should not try this right away.

First, you need to master trading the way you like, using a swing trading system or some other strategy. Only once you have consistency year after year you can seek out new markets and new exploits like this one for USD/CAD. Whatsmore, thinking outside your typical trading way could lead to a life-changing discovery. Traders do not have to just follow other experienced traders, more often than not your original research will be more effective. 

To conclude, the USD/CAD, as well as other currency pairs have hidden fundamental gems, but similarly to the popular indicator, popular analysis like the Oil/CAD correlations are not useful. There are better things not in plain sight. If everybody can see the correlations and trade the same way, know the big banks will be hunting for the majority. The example above is just one way how your trading can evolve and should evolve throughout your trading career.

Categories
Forex Trade Types

What is a Forex Carry Trade?

Many trading strategies or systems that we are familiar with, are based or based on technical analysis or indicators. Unlike these strategies, Carry Trade is a fundamentally based strategy. Carry trade, also sometimes known as a financial bicycle, is a strategy that allows you to take advantage of the existing differential in interest rates of […]

Many trading strategies or systems that we are familiar with, are based or based on technical analysis or indicators. Unlike these strategies, Carry Trade is a fundamentally based strategy. Carry trade, also sometimes known as a financial bicycle, is a strategy that allows you to take advantage of the existing differential in interest rates of […]

Many trading strategies or systems that we are familiar with, are based or based on technical analysis or indicators. Unlike these strategies, Carry Trade is a fundamentally based strategy. Carry trade, also sometimes known as a financial bicycle, is a strategy that allows you to take advantage of the existing differential in interest rates of two different currencies.

Although it is a fairly short and simple definition we must have very clear a very important concept of fundamental analysis in Forex such as interest rates. As you know, each currency represents the economy of a country as a whole. All right, interest rates are one of the most important fundamental indicators for analyzing the state of a country’s economy and, therefore, the strength or weakness of its currency.

Interest rates generally set the cost of money, that is, the price we pay for using a certain amount of capital for a certain amount of time. It’s very important for you to know, one of the most important economic news stories that are usually published and affect the price of the currency in question is interest rates.

You should not confuse carry trade with financial arbitration. Arbitrage is a strategy that consists of obtaining an economic benefit by taking advantage of the price difference of a financial asset in different markets. And unlike carry trading, in arbitration, the risk is very low.

Foundations of a Carry Trade

As mentioned above, the spread in interest rates between two currencies offers traders and investors the opportunity to win over the long term. The main idea of any carry trade strategy is very simple: the investor finances or borrows a currency with a low-interest rate (weak economy), sells this currency, and buys another with a higher interest rate (strong economy).

Now, how do we know if an economy is strong or weak? There are several factors that affect interest rates, but inflation or inflation prospects is one of the most important. A strong or solid economy has good GDP growth (Gross Domestic Product) and good employment data, if people consume more goods and services, there is greater demand and inflation increases. To control the increase in inflation and keep it within the target range, the Central Bank of that country has to raise interest rates to limit inflation. By raising the interest rate, the country becomes more attractive for attracting foreign investment and this results in the revaluation or strengthening of that country’s currency.

On the contrary, if an economy is weak or grows very little, has poor data on GDP and employment, consumption of goods or services is low and that country cannot afford to have such a strong currency. The central bank must reduce or keep interest rates very low, thus incentivizing credit since it is cheaper for companies to borrow. As a result, investors will want to take their money to another country with better interest rates by making the local currency devalue or weaker.

Watch this because now countries with the current situation have started to lower rates and print money for free and even the US. that can be considered a strong economy has very low-interest rates. Same situation in Europe with the policies of the European Central Bank.

The Objective of the Carry Trade Strategy

The carry trade has a clear objective: to obtain benefits from the spread of interest rates and not from the variation of prices that can be given during the execution of this strategy. Therefore, benefits can be derived from this strategy, although the price of the currencies involved does not vary by a single pip.

However, as traders, we hope that the currency in which we invest will be strengthened so that by exchanging it for the currency we borrow (we finance) the profit obtained will be greater.

Some Disadvantages of the Carry Trade

One of the disadvantages of this strategy, as you may have already thought, is the risk that the currency in which you buy will be devalued. This is largely due to the fact that the most common practice of a carry trade is to finance or borrow from developed countries with strong economies to invest in debt securities (bond market) of emerging countries with higher yields.

Another disadvantage of this strategy is that there is uncertainty about the maintenance of current interest rates in the future. As a long-term strategy, interest rates tend to vary over the course of the year (in fact we are seeing it recently) and although these variations are small the final benefit will depend on these small variations that can be made by the central bank of each country.

A Practical Example of a Carry Trade

One of the main currencies that traders used to enhance carry trade is the Japanese yen because of its very low (near zero or even negative) interest rates. This has changed because currencies with the euro or the dollar already have very low-interest rates as well. Previously, they borrowed the Japanese yen and then bought or invested in assets denominated in dollars, euros, or other currencies of emerging economies.

Let’s imagine now that we want to carry trade and provide the differential between the interest rates of Japan’s economy (with interest rates of 0%) and the economy of an emerging country like Brazil (with interest rates of 7%). The process would be roughly like described below:

-We borrowed 10,000,000 yen at an interest rate of 0%, which means that within a year we would have to pay back 10,000,000 yen.

-We sell the 10,000,000 yen and buy dollars at an exchange rate of 100 yen to the dollar and in this way we get 100,000 dollars.

-We sell the dollars obtained and buy Brazilian real at an exchange rate of R$ 3 per dollar, obtaining R$ 300,000.

-With the Brazilian real we buy bonds or bills of the Brazilian central bank with an annual maturity and an annual yield of 7%. Within a year we will receive 321,000 reais (capital plus interest).

-Now we must pay the initial credit by returning the 10,000,000 Japanese yen we borrowed. Assuming the exchange rates have not changed, we exchange real to dollars and get $107,000. Then we change the dollars into yen and get 10,700,000 yen.

-Finally, we return the 10,000,000 yen of the initial credit and we have 700,000 yen (equivalent to 7,000 dollars) of benefit.

In this way, we have obtained a profit-based exclusively on the deference of interest rates. In this example, we assume that exchange rates remain constant, but what would happen if, for example: does the Japanese yen revalue and after a year go from 100 yen to the dollar to 90 yen to the dollar?

In this case, by exchanging the $107,000 obtained to yen we will receive 9,630,000 yen. We must pay the initial loan of 10,000,000 yen, therefore, we would have a loss of 370,000 Japanese yen that would be equivalent to a loss of 3.7% in the carry trade operation.

Risks Associated with a Carry Trade

As we saw in the example above one of the most important risks for the foreign exchange trader or investor arises when exchange rates do not move in their favor, that is, the currency you borrowed is revalued or the currency is devalued in the money you borrowed was invested.

There is another risk, which is associated with the choice of the asset to invest in since we can invest in the bond market, equity market, or real estate market. In the case of shares or the real estate market, we do not have a guaranteed return and in the case of the fixed income market, there is always the risk of default by the issuer of the bonds.

How to Use Carry Trade in the Forex market to Maximize Profits

In the Forex market when we open a position, we’re basically borrowing one currency, trading it for another, and depositing it. All this happens on a daily basis, so if a trade remains open from 5 pm, New York time, the trader will be paying the overnight interest rate on the borrowed currency and at the same time earning the interest rate on the held currency.

Because each currency pair is made up of two currencies representing two economies with two different interest rates, most of the time there will be a spread in the interest rates of the pair. This difference will result in a net gain or interest payment. Interest is paid in the currency borrowed (sold) and paid in the currency purchased. In this way, each currency pair has an interest payment and an interest charge associated with maintaining the position.

This means that if we buy a currency with a higher interest rate than the borrowed currency (sale), and keep it open after 5 pm, New York time (23:00h Spain), the net interest rate differential will be positive and we will make money with this. Otherwise, if the currency we buy has a lower interest rate than the borrowed currency, the net spread will be negative and we will pay interest to keep that transaction open after 5 pm (New York time).

This interest rate differential that we earn or must pay, you can find it on your trading platform under the name of Swap or Rollover. In the specifications of each currency, we will have a long position swap (buy) and a short position swap (sell).

In order to use this strategy in practice we must take into account the following:

1. Find currency pairs with a positive swap

You can see this information on the website or on your broker’s platform. If you use Metatrader you have it easy, you can see it by right-clicking on the asset in question in “contract specification”.

2. Conducting a favourable swap transaction

Once we have located an opportunity (this is easy) you should not do an operation for no reason. The idea is to make a transaction through a profitable system and also that the swap is favorable to you. The swap will generate a daily plus and in the event that the transaction leaves by stop loss (loss) will be less. And if the operation is profitable it will be greater. It is a plus in our operation.

3. More medium-term long-term vision

Keep in mind that the time in this type of operation is in your favor so keep in mind that these operations are not short-term and are raised to get the juice from them during their duration.

4. Sound risk assessment and capital management

As with any other type of trading system and trades, before you open a trade make sure you know what percentage of the account you can lose. Do not be optimistic because the swap is favorable, the operation can go against you shortly after opening it, and if you have not measured the risk well you can have a bad time.

Conclusion

In conclusion, tell you that carry trade is a strategy based on fundamentals that try to profit from the difference between currency pairs and the interest rates. Therefore, you should be very clear that interest rates are and what fundamental factors affect them.

It is a long-term lake strategy so patience is key to getting the desired results. Despite being a long-term operation, this doesn’t mean you can open an operation and forget about it. It is necessary to monitor interest rates and possible changes in the rates and monetary policies of the central banks of the disputed currencies in such a pair.

Exchange rate risk is a critical factor in the carry trade, which is why this strategy works well in periods of low volatility. On the contrary, you should always bear in mind that carry trade is a high-risk trading strategy in periods of instability such as the current one. However, if the swap significantly affects your operation you can consider the operation to exploit only the positive swap part.

Categories
Forex Trade Types

What is Revenge Trading and Should You Try It?

Revenge trading, it sounds like something you would do to an ex or after the markets have hurt you, and in a sense, that is exactly what it is. Let’s spend some time defining revenge trading and determining whether or not it is right for you. You have probably been told at least a thousand […]

Revenge trading, it sounds like something you would do to an ex or after the markets have hurt you, and in a sense, that is exactly what it is. Let’s spend some time defining revenge trading and determining whether or not it is right for you. You have probably been told at least a thousand […]

Revenge trading, it sounds like something you would do to an ex or after the markets have hurt you, and in a sense, that is exactly what it is. Let’s spend some time defining revenge trading and determining whether or not it is right for you.

You have probably been told at least a thousand times that losses are a part of trading, in fact, they are a rather large part of trading and they are something that you will experience at every stage of your trading career. What’s important is that those that are trading and experiencing these losses are able to deal with, and to deal with them in a way that won’t p[otentially jeopardize all the work that has been done up to that point in their trading lives.

The term revenge trading centres around the inability of accepting a loss, or the idea that you may have been wrong about something, be it your analysis, or from listening to someone else. Those that are not able to accept those losses will take out their frustrations and anger at those losses on their next trades, other being far too aggressive or completely throwing the rules out of the window. The problem with this is that it throws your discipline out, it also removes any positive risk management that you may have been using and any work that had previously gone into it.

So why would you want to use one of these revenge trades? Realistically you would not want to, they often occur at times when you have become frustrated or have had a number of different losses particularly in a row. Let’s imagine that you have made a trade and it has lost, it loses you $50, this has annoyed you and so you decide to make a larger trade to try and win it back. You can see the issues that could be arising here.

There are a number of different ways that revenge trades can manifest, they are often based on the personalities of the person and also the mood, so let’s take a little look at the sorts of revenge trades that they are the damage that they can do to your account and trading mentality.

Overtrading

If you have had a number of losses in a row, then someone who no longer has confidence in thor trading strategy or are getting fed up with waiting for all the entry criteria to be met, or you just do not feel that the strategy is working as well as you were expecting it to. At this stage, you may begin to start opening up more and more trades in the hope of making profits. Of course, in reality, this is only increasing the risk to the account and the trades being opened are far more likely to end up in the negative due to the nature that they are being opened with little regard to the risk management that had previously been put in place.

Larger Trades

Another thing that some people do when they have made a loss is to increase the trade size of the next trade. This is done for the simple reason that they want to win back the money that they just lost. This is a terrine idea and will only lead to a lot of larger losses. What would you do if the next trade loses? Create an even larger one? Some people do this in the hope of getting more money back and recovering any losses, it is not a recommended tactic and not something that you should think about doing. If you make a loss, accept it, and continue with your plan, do not start making larger trades and destroying the risk management of your strategies.

Removing Stop Losses and Take Profits

Another thing that some people do is to remove the stop losses and take profits levels on the trades. This is simply due to the fact that they want to make more money when it goes to profit, and do not want to make any losses. This is bad in two ways, firstly, with no take profits, the trade could easily go into the usual take profit location but then reverse and so nothing would have been taken. With no stop loss, there is no limit to how negative the trade could go and without a stop loss, a single trade could potentially blow an account. Not a tactic that any trader should be doing.

If you are feeling like you want to do any of those things, then you need to take a step back and reevaluate what you are doing. If you are frustrated or stressed, take some time away from mth markets, go out, do some exercise, and clear your mind. You need to have some belief and trust in your trading plan, it has been doing well, so do not let a single loss or two throws you off. Keep your risk management in place and do not throw away all of the work you have done up to this point, the only person that will suffer is you.

Categories
Forex Trade Types

What is Naked Forex Trading?

Naked Forex Trading, also known as price action trading, is the act of trading without using any indicators. Indicators are used to measure certain things about the market to help traders decide whether to enter a trade. Exchange rate, volume, or the open interest of a currency pair are common things that are measured by […]

Naked Forex Trading, also known as price action trading, is the act of trading without using any indicators. Indicators are used to measure certain things about the market to help traders decide whether to enter a trade. Exchange rate, volume, or the open interest of a currency pair are common things that are measured by […]

Naked Forex Trading, also known as price action trading, is the act of trading without using any indicators. Indicators are used to measure certain things about the market to help traders decide whether to enter a trade. Exchange rate, volume, or the open interest of a currency pair are common things that are measured by indicators. Many traders recommend that beginners start with naked trading before learning how to use indicators. 

Naked trading is based on the present market, not past or future performance. Learning price action is key here because it will help traders to figure out which way the market is going to move. Decisions are made solely based on the candlesticks or charts one is looking at. This is a simpler trading strategy and decisions can be made much quicker because there is less data to analyze. Many naked traders use support & resistance levels and trendlines for better confirmation that a trade should be made. It is also important for naked traders to understand market cycles:

  1. Ranging lows
  2. Trending upwards
  3. Ranging highs
  4. Trending downwards

This cycle tends to repeat itself. One common rule is that traders should always trade with the trend, never against it. Of course, you’ll also need a good understanding of candlestick patterns and what they mean before you adopt this strategy. There are two main chart patterns that you should recognize if you’re going to take up naked trading:

  1. Head and Shoulders: This is a common pattern that shows up quite often or about every day. It consists of two shoulders, which are lower highs, and a head, which is the highest point. This pattern suggests that an uptrend is about to reverse into a downtrend or vice versa. If you have an open position, this is a sign that you should sell before the market turns bearish. 
  2. Wedge Patterns (Also known as Triangle patterns): This pattern can signify different things in the market. It is a triangle with one long side followed by prices getting closer and closer together. The other two sides are drawn with trend lines. A breakout occurs when the price gets too close, resulting in either an uptrend or downtrend. 

One key benefit of this type of strategy is that it can help avoid the pesky analysis paralysis, which delays trading decisions because of information overload, resulting in delayed trading decisions, or the inability to decide altogether. Still, this strategy isn’t perfect. Naked trading tends to focus on technical analysis, which involves analyzing charts, without paying much attention to fundamental analysis. Traders still need to watch an economic calendar in case events will affect their trades. It may be more difficult to trade ranging markets with this strategy, although it isn’t impossible. It can also be difficult to recognize certain chart patterns and to get used to trading without indicators if you’ve used them before.

To sum things up, traders should know that naked trading is simply the act of trading without any indicators. Decisions are made by analyzing candlesticks or charts and this method is strongly based on technical analysis. While some traders prefer this simpler strategy, others may feel more confident trading with the help of indicators. All traders should understand how naked trading works before deciding whether this strategy might work for themselves.

Categories
Beginners Forex Education Forex Basics

How to Avoid Missing Out on Great Trades

If you have been trading for any period of time, you would have come across the scenarios where you have looked at the markets, analyzed them and found a good trade, but you never took it, an hour later you are back looking at the markets and noticed that if you had taken that trade, […]

If you have been trading for any period of time, you would have come across the scenarios where you have looked at the markets, analyzed them and found a good trade, but you never took it, an hour later you are back looking at the markets and noticed that if you had taken that trade, […]

If you have been trading for any period of time, you would have come across the scenarios where you have looked at the markets, analyzed them and found a good trade, but you never took it, an hour later you are back looking at the markets and noticed that if you had taken that trade, it would have hit its take profit and more, so why didn’t you take it? You have no idea because you didn’t write it down. We have been told 1,000 times to write down everything about your trades, why you entered, whey it won or lost, but we are very rarely told to write down why we don’t make a trade, and this is often a great indicator as to why we are missing trades. It’s like the long-standing saying of “If it isn’t written down, it didn’t happen.”

It is important to understand that while you do not need to take every trade opportunity that is available, and some of them you may not be able to take for one or many reasons, but consistently missing good trade opportunities will only hurt you in the long run, both your account and your own psychology as a trader. It can lead to discrepancies between your actual trading and the backtesting that you have performed where most of the trades have been taken. There is also the law of averages if your strategy generally wins 60% of the time (and that is generally what is needed) and you miss out of 5 out of the next 20 trades, those 5 trades would have been winners, you are now getting towards a losing average which doesn’t mean your strategy is bad, it just means that something happened to cause you to miss trades.

So let’s take a little look at some of the reasons which could cause you to miss trades.

You lost your last trade

Losing a trade is never easy, it stays in your head and if you lose a few in a row it can be hugely demoralizing and may even make you want to give up. Don’t, you have a strategy, a strategy that works, so why stop? Every strategy has its winners and losers, in fact, every industry in the world has its ups and downs, if Universal Studios gave up after its first loss on a film, we would have some of the great films that came afterward. It is important to accept the loss as a loss, its part of the strategy, try to remove it from your mind and move on to the next one which as you just watched, was profitable, but you didn’t take it.

Use a journal

You should already be making a journal entry for the trades you make, but now you need to start making a journal for the ones you do not take. Why didn’t you take it? What hade you avoid it? What were you thinking? Was it still in line with your strategy? Asking questions like this will enable you to understand exactly why you didn’t take it, it is also a way to look back and reflect. It can help to identify some of the major reasons why you are missing trades and help you to overcome those obstacles in the future through planning.

Not enough margin

There isn’t much we can say on this one based on your psychology, this is down to your risk management or strategy as a whole, if your strategy is asking you to make more trades than your margin can take, then you may need to change it up, either by scaling down the lot sizes or changing criteria to produce fewer trade signals. Not having the capital to make a trade can cause negative thoughts in your mind, thinking that you need to make some larger trades or trades outside of your strategy so you can build up your capital to be able to afford the new trades, do not do this, instead adapt your own strategy to suit your current account balance.

No confidence

A loss can cause your confidence to take a knock, that is natural and it happens for anyone who has emotions. However, if you are suddenly feeling low and are not taking trades because you are no longer sure of your strategy. Do not skip the trades, simply lower your trade sizes, this will allow you to risk less per trade, reducing the risk can give you back a bit of your confidence that you won’t lose as much on a losing trade.

Not setting alerts and orders

Most trading platforms now come with some very handy features, they can allow you to set up alerts that get sent to your email, phone, or simply give off a message and alert tone. We know that you can’t always be right next to the computer 24/7, so the alerts allow you to get on with your life and as soon as a trade setup comes up, you will be alerted and can then make the trade. Not having these set up will cause you to miss those trade opportunities that come up while you are cooking the dinner or out at the shops.

Looking at individual trades instead of Forex as a whole

This is relevant to anything in life, if you look and concentrate on a single aspect of trading, then you will either be extremely happy or extremely down. You need to look at the big picture, look at your account, strategy and yourself as a whole, there will be losses that are part of trading, there will be winning, another part of trading. The ups and downs are what makes Forex exciting. Your strategy has been built to be profitable in the long run, so look at it like that, don’t get discouraged by a single loss or two.

Don’t shrug off a missed trade as something that you could have taken but didn’t, use it as a way to learn why you didn’t take it, this will help to benefit you in the future and will help to make your strategy far more profitable than it currently is.

Categories
Beginners Forex Education Forex Basics

Are You Forcing Your Forex Trades?

While trading, you’ve most likely come across a stage in time when there is not a lot of thing happening, in fact, nothing is happening, the markets have flatlined or your strategy just simply is not picking up any trades. When these times are happening, there are a few things that you can do, you […]

While trading, you’ve most likely come across a stage in time when there is not a lot of thing happening, in fact, nothing is happening, the markets have flatlined or your strategy just simply is not picking up any trades. When these times are happening, there are a few things that you can do, you […]

While trading, you’ve most likely come across a stage in time when there is not a lot of thing happening, in fact, nothing is happening, the markets have flatlined or your strategy just simply is not picking up any trades.

When these times are happening, there are a few things that you can do, you can use this as an opportunity to take a step away from trading, use it to take a break and refresh, you could use this time to learn something new about trading, such as a new strategy, or you could try and make some trades in order to make up a few extra pips and profits.

Hopefully, you didn’t choose the last option, if you did, then you are most likely guilty of trying to force trades when you should not be making any.

So what exactly is forcing trades? When you created your trading plan, you would have also created certain trading rules that you would stick by. When you make a trade that goes against any number of these rules, then this would be considered as forcing a trade. Traders are most often forcing trades when the markets are relatively slow, or that a trader has gotten a little bit greedy and is looking to make some additional profits.

It is important that you remember that you set up these rules for a reason, so why would you now start to break them?

Think back to the last time that you broke one of your trading rules, what was the reason behind it? The temptation to break the rules when things are quiet can be very strong, in fact, it is one of the most common ways that traders manage to hurt their accounts. Things are slow in the markets, it’s a bit boring, I will just place a small trade, it goes wrong, now you want to make that back so you place a larger trade, this can continue until an account goes bust. When the markets are not a match for your strategy, you simply do not trade.

Why did you create a trading plan if you aren’t going to follow it? Trading and Forex is all about consistency, you cannot be consistent if you are forcing trades and breaking rules. The markets come with exciting trends and boring horizontal movements, you need to be able to fill the quiet times with something that won’t potentially hurt your account.

If you are constantly experiencing times where the markets do not suit your strategy, that is fine. What you could do instead of forcing trades is to have a look at a new strategy that suits the kind of market conditions that your other one does not. This will then give you the opportunity to trade in these quieter times too. Create two separate plans that can be used during different conditions, this is simply adapting, and as you have a full plan for the new system, you will not be forcing any trades.

When starting out it can be hard to stick to your plan all the time, especially when you see others making money. Stick to it, it is all about consistency and when you are able to build up your levels of patience and self-discipline, it will greatly benefit you in the future and will ultimately make you a much more successful trader.

Do not try to anticipate the markets, do not try to lead them and do not try to force them, these are some of the golden rules of trading, you are not in control, the markets are. Trading is a long haul exercise, you do not need to make money the first day or week, you want to make it over the next 20 years, so do not damage your progress by trying to place trades when they should not be placed.

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Beginners Forex Education Forex Stop-loss & argets

What to Consider When Planning Trade Exits

When it comes to planning trades, the majority of people will instantly think about planning to get into a trade, but there is an entire second part of each trade, the exit. Getting the exit right can be just as important as the entry, if you get it wrong you can miss out on some […]

When it comes to planning trades, the majority of people will instantly think about planning to get into a trade, but there is an entire second part of each trade, the exit. Getting the exit right can be just as important as the entry, if you get it wrong you can miss out on some […]

When it comes to planning trades, the majority of people will instantly think about planning to get into a trade, but there is an entire second part of each trade, the exit. Getting the exit right can be just as important as the entry, if you get it wrong you can miss out on some potential profits, or you can potentially lose out and make some very large losses.

Some strategies even focus on the exit rather than the entry as they know the importance of it, so why exactly do people seem to negate this part of the trade? It has simply come down to the fact that people look for profits, in order to do that they need to put on a good trade, even those that look at the exit of a trade often just look at the basics of it, the stop loss and take profit and pretty much nothing else, but we need to think about a lot more.

So we are going to be looking at a number of different things that you need to be thinking about when you decide to plan your exits and the importance of doing so.

What are you willing to risk?

Your risk management plan should be the first stage of planning your exits. This will detail exactly how much you are willing to risk with each trade or how much of your account you are willing to risk each day, week, or month. Many traders look to risk 1% to 2% of their account per trade. However, each strategy is different and so some risk much less and some more. It will all come down to you and how much risk you are willing to hold and also your strategy. Ensure that you have this planned, it will give you the baseline for when you need to get out of a trade, either through hard stop losses or trailing stops, whatever your method, ensure that you know how much you are willing to risk with each trade. Do not be afraid to alter it, if it is not working the way that it is, there is no harm in altering it in order to more suit yourself and your strategy.

At what point do you cut your losses?

You will have trades that go negative, everyone does and it is a major part of trading that you cannot avoid, especially considering that the majority of trades always start out negative due to spreads. What you need to ask yourself though is where and when you should cut your losses, how far are you going to let it go? This works along with your risk management plan and can indicate to you where you should be putting your stop losses. While you should always be using stop losses, there will inevitably be times where you don’t, others through purpose or just due to completely forgetting it. If this happens, you need to know when and where you will get out of those trades, the last thing that you want to do is to let it run indefinitely, so have an idea that is based on your strategy of when you will want to cut the losses should things go the wrong way.

What if your tradies invalidated?

The markets can be a little unpredictable, this is very much true, but the world can be just as unpredictable, and there can be events happening that will completely invalidate any trades that you may have placed. There needs to be a contingency plan in place just in case this happens. What could result in this? A Tsunami or earthquake or more recently, a pandemic that goes around the world taking out a lot of the world’s economy, when things like this happen you will need to act.

You need to have an understanding of what you would do, if things are suddenly going crazy in the world and with the markets, are you going to exit your trades in order to save them and your account? If the market consensus has suddenly gone south and against you, it may be a good time to close out and reevaluate the markets before entering again. There is also the argument of letting it run as things can be unpredictable and so could go the right way too, but this is down to you and your strategy. Just make sure that you are prepared to make changes and potentially cause trades should things go a little crazy out there.

How long are you going to hold your trades?

Initially, this will come down to your strategy, those that are scalping will be holding their trades for a shorter period of time while those that are using a swing trade strategy will of course be holding the trades for a long time. However, even within these sorts of strategies, different people will have a different idea of how long they should be holding onto their trades, ultimately it will be up to you how long you hold it, but what is important is that you have an idea of how long planned before you make any trades.

Consider your strategy, consider your own risk style, and plan how long you will hold your trades. It is vital that you try not to come out of trades too early or too late if you do it can skew your overall strategy and risk management plan, keep your trades in line with your risk to reward ratio so even when you do need to cut losses, you are doing so in line with this and so it will help to keep your account profitable.

So those are a few of the things that you may need to consider when you look to exit a trade. Try not to only concentrate on the entry, while that is, of course, important, it is just as important that you get out of a trade in the right place. Stick to your plans, your strategy, and your risk to reward ratio and it will help you and your strategy to become a lot more successful and profitable in the long run.

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Beginners Forex Education Forex Basics

Five Actions That Can Ruin A Good Trade

Having a good trade idea is a fantastic position to be in, whether it comes from your own analysis, your own trading plans, a signal provider, a mentor, or anywhere else, a good trade idea is a good trade idea. Now that you have it, what do you do with it? You have it, you […]

Having a good trade idea is a fantastic position to be in, whether it comes from your own analysis, your own trading plans, a signal provider, a mentor, or anywhere else, a good trade idea is a good trade idea. Now that you have it, what do you do with it? You have it, you […]

Having a good trade idea is a fantastic position to be in, whether it comes from your own analysis, your own trading plans, a signal provider, a mentor, or anywhere else, a good trade idea is a good trade idea. Now that you have it, what do you do with it? You have it, you place it, and…. It goes wrong, you lose the trade. Why?

There are a number of different things that may have gone wrong, so we have come up with a few different things that you may have done that can cause a good trade to go bad.

#1 – Timing: A good trade is a good trade, but it won’t be a good trade forever, the markets are constantly moving and so are the entry and exit positions. More often than not you will head online and see someone posting analysis, the trade looks good, their analysis looks spot on so it must be a good trade right? Well at the time, yes, but we may be an hour or more later than when the analysis took place, so placing that trade now will put us in a position which is very different from the one suggested. It is important to take action as soon as the opportunity comes up, even with your own analysis, you are analyzing for that period in time and not for the future, so if you have the trade, ensure that you take it in a timely manner.

#2 – Lack of preparation: No matter where the trade idea comes from, it is important that you make the right preparations before actually taking the trade. Have you looked at the history of the pair? Has it changed since coming up with it? What is the price action like? Questions like these are required, you need to know the answers and they all need to point to the trade being active before actually making the trade. Do your own analysis on someone else’s trade signal and double-check your own before putting the trade on.

#3 – Risking too much: Most people will constantly go on about using proper risk management and for good reason. Not using good risk management can cause a good trade to go bad and it could potentially go very bad. When creating your trading plan, you should have worked out exactly how much you should risk per trade and also the size of the trades that you will use. No matter how good a trade setup is, a good trade will be instantly considered bad if the risk management is not properly adhered to. You are putting your account in danger because even the perfect setup could still lose, but it would still be considered a good trade if it loses but all other parts of the trading plan are kept in line with it.

#4 – Dwelling on previous trades: When you come up with a new trade idea, you need to give it 100%, if you are still thinking of the previous trades whether they won or lost, you are not giving the current trade the amount of attention that it requires. If you are not looking at it with 100% of your attention then there is a good chance that you may miss something, in fact, the chances of making a mistake go up dramatically. Coming off a previous loss can also cast doubt and cause you to hesitate when putting on another trade, this wastes valuable time and can potentially cause you to miss the timing completely when you do eventually put on a new trade, it’s no longer a good trade. The same can go for thinking of winning trades, it can give you a lot of confidence which could cause you to place the trade without fully satisfying the trading conditions required by your trading plan.

#5 – Not treating trading like a business: You have probably been told a number of times that you should be treating trading like a business, this puts you into the mindset and will help to make you far more responsible for your trading. When we are using our own money we are far more likely to add a little extra or to place trades that we would not normally trade, so keeping things professional will help us to avoid those pitfalls.

So those are a few things that can ruin a good trade, it is important to place your trades in a timely manner and only if they are in line with your risk management and trading plans, that way, you can ensure that any good trades that you analyze or come across, you can place with confidence knowing that they are all good trades.