If you want to become a successful forex trader then it's imperative that you develop your own stop loss strategy. Stop losses are incredibly important because they protect your trading capital and limit your losses.
A profitable trader's account will either contain lots of small losses but plenty of bigger gains which more than compensate for the losses, or they will have similar sized gains as the stop losses but more of them so they are in profit overall.
For example, a trader may have a stop loss placed at 10 points away from entry each time, but has much bigger targets of 20+ points, for instance, or he may even let his winners run for as long as possible.
Alternatively he may have a stop loss of 30 points but also looks for 30 points profit from each trade, so in this case he needs a win ratio of over 50% to be profitable.
You also need to first of all be making some decent profits from forex trading. This way you can really analyze your trading and scrutinize your exit points and stop loss limits.
The perfect stop loss strategy should basically be at the point where you can admit that your initial trade was wrong, and the criteria that made you enter the trade no longer apply.
An example of this would be if you were going long on a rising moving average. A good stop loss here would be at a point just below the rising moving average because if this subsequently occurred then it is evident that the rising trend has come to an end and your reasons for entering the position no longer apply.
Your optimum stop loss level should be at a point where you can safely say that your initial entry has gone against you and it's time to get out, without being too close, but it should also be at a point where it's statistically unlikely to turn around and bounce back into profitability.
For example, a while back I used a stop loss of 20 points when trading GBP/USD (including the spread so the price would have to move 17 points to trigger my stop loss) with target profits of 10-60 points each time. However after analyzing my records I discovered that this stop loss was slightly too far away because it hardly ever bounced back from 14+ points away so why have a stop loss of 20 points?
This was just throwing money away so I reduced my stop loss to 14 points and noticed a significant increase in my profits and have stuck with it ever since (although I am constantly tweaking my trading strategies).
One final point I want to make is that you should study the behaviour of the different currency pairs you are trading because you will often find that you need slightly different stop loss levels for different pairs in order to make maximum profits, as they all behave differently.
The key point is that you have to find your ideal stop loss strategy because trading with random stop loss levels or worst still no stop losses at all will really hold you back and will make it extremely difficult to make consistent profits from forex trading.
Showing posts with label forex education. Show all posts
Showing posts with label forex education. Show all posts
Wednesday, March 3, 2010
Wednesday, February 17, 2010
Are You Familiar With Forex Quotes?
New forex traders can find technical analysis quite intimidating (even baffling) at first. In reality, this is the most frequent initial hurdle. The quote is brief, but it packs in a great deal of helpful information. And although it doesn't make a lick of sense to a newcomer, here's a quick, simple explanation of what it means.
A Forex quote is permanently based on a pair of currencies, where you're at once selling one currency and buying another. And there are two prices, one for selling and the other for buying (bid price and ask price). As reading a Forex quote, it might typically look like this: USD/JPY 106.52/56
The first currency is called the base currency and the other is the quote currency. The base currency value is permanently 1 (in this case 1 US dollar). The number in the quote tells you how many of the quote currency (Japanese yen) you can buy with one US dollar.
And that number - 106.52/56 - is a shortened version of two numbers (106.52 and 106.56). The lower number is the bid price; the other is the ask price. The bid price shows how much a dealer will purchase the base currency for. The ask price shows how much a dealer is willing to sell it for.
If you saw 106.52/56 after reading a Forex quote, it would mean that you could sell US dollars and receive 106.52 yen per dollar. On the other hand, if you wanted to buy US dollars, you would have to pay 106.56 yen for each dollar.
The difference between the bid price and the ask price in a Forex quote is called the "spread," and each tiny 0.01 unit is called a "pip." In our example, the spread for our USD/JPY quote is four pips. The spread for the most commonly traded currencies is usually that small. In all-purpose, you'll do most of your trading in US dollars, Japanese yen, Great Britain pounds, Euros, Swiss francs or Australian dollars. Furthermore please keep in mind that when the competition really heats up some spreads will be as small as one pip.
On the other hand, for a reduced amount of heavily traded currencies, you could run into much larger spreads. But don't think that a small spread means tiny profits (or losses). As you're trading hundreds of thousands of units, even that one pip spread can mean big money.
Let's say you're dealing with merely 100 US dollars. Selling your hundred dollars for 10,652 yen and buying them for 10,656 yen only amounts to a four yen difference. But most Forex traders will be dealing with amounts of 100,000 US dollars (or many multiples). So now we know, when reading a Forex quote, that even such an unimpressive little four-pip spread amounts to considerably more (at 4,000 yen, and probably several multiples of that).
And of course, similar trades could be repeated during the day and the week. This means that anytime you're reading a Forex quote, you'll recognize that this tiny little spread is extra important than its meager size at first suggests.
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A Forex quote is permanently based on a pair of currencies, where you're at once selling one currency and buying another. And there are two prices, one for selling and the other for buying (bid price and ask price). As reading a Forex quote, it might typically look like this: USD/JPY 106.52/56
The first currency is called the base currency and the other is the quote currency. The base currency value is permanently 1 (in this case 1 US dollar). The number in the quote tells you how many of the quote currency (Japanese yen) you can buy with one US dollar.
And that number - 106.52/56 - is a shortened version of two numbers (106.52 and 106.56). The lower number is the bid price; the other is the ask price. The bid price shows how much a dealer will purchase the base currency for. The ask price shows how much a dealer is willing to sell it for.
If you saw 106.52/56 after reading a Forex quote, it would mean that you could sell US dollars and receive 106.52 yen per dollar. On the other hand, if you wanted to buy US dollars, you would have to pay 106.56 yen for each dollar.
The difference between the bid price and the ask price in a Forex quote is called the "spread," and each tiny 0.01 unit is called a "pip." In our example, the spread for our USD/JPY quote is four pips. The spread for the most commonly traded currencies is usually that small. In all-purpose, you'll do most of your trading in US dollars, Japanese yen, Great Britain pounds, Euros, Swiss francs or Australian dollars. Furthermore please keep in mind that when the competition really heats up some spreads will be as small as one pip.
On the other hand, for a reduced amount of heavily traded currencies, you could run into much larger spreads. But don't think that a small spread means tiny profits (or losses). As you're trading hundreds of thousands of units, even that one pip spread can mean big money.
Let's say you're dealing with merely 100 US dollars. Selling your hundred dollars for 10,652 yen and buying them for 10,656 yen only amounts to a four yen difference. But most Forex traders will be dealing with amounts of 100,000 US dollars (or many multiples). So now we know, when reading a Forex quote, that even such an unimpressive little four-pip spread amounts to considerably more (at 4,000 yen, and probably several multiples of that).
And of course, similar trades could be repeated during the day and the week. This means that anytime you're reading a Forex quote, you'll recognize that this tiny little spread is extra important than its meager size at first suggests.
Visit my profile here.
Tuesday, February 16, 2010
Dow Theory For Forex Beginners
In general, technical analysis can be defined as a method of price prediction based on mathematical calculations instead of economic reports. This method has been created for applicable needs in getting profit on stock and currency market. Initially technical analysis was divided into several techniques and only in the 70-ths all these methods were united into an integral approach with common psychology, axioms and ruling principles.
Technical analysis is a way to forecast probable price movement with the help of market movement charts reflecting the history of fluctuations. Practical usage of technical analysis determines several axioms.
Axiom 1
Every price formation factor, - economical, political, psychological has been taken into account and reflected on the chart. Once news is issued, market prices will move to reflect this new information.
Axiom 2
Price movement has got its direction. This suggestion has become a basis in all the techniques of technical analysis. The main purpose of technical analysis is defining of probable rate movement (trends in other words) and to apply acquired knowledge in trading. The definition given by Dow says that during bullish trend each consequent peak and fall is higher than the previous one. This suggestion is the main fundamental principle of technical analysis. Trends are classified into three types: bullish (upside movement), bearish (downside movement) and sideway trading (the price remains practically unchanged). Each of the given types is rarely encountered in its pure form, as straight price actions occur not very often in the market.
A certain trend is seen until some signs delivering opposite direction appear. According to Dow, trends exist in spite of market noise. However, in real practice it is not easy to determine whether a reversal is a starting point for a new trend or just a temporary movement. Contemporary technical tools permit traders to define it with easy, however, different traders interpret trend signals differently.
Analysts predict if a certain rule worked in the past, this rule may be applicable in future as the price is formed mostly due to human psychology. These are the main fundamental ideas of technical analysis:
Rate takes everything into account, therefore, everything needed to master this field is to study price charts. The aim is to find out trends at their initial phases, to recognize a trend and to use the knowledge in further development making right decisions. And the last idea is that if something worked in the past, it will probably work in future.
The Dow theory denotes the "main movement", the "medium swing" and the "short swing". The "main movement" is a prevailing component as it may last for several years. The "medium swing" is a correction to the main movement and should last from ten days to three months. The "short swing" or minor movement fluctuations may last up to three weeks.
According to the theory market moving averages must confirm each other and every thend should be confirmed by volume. Dow assumed that volume confirmed every price trend.
Many modern technical analysts treat Dow Theory's definition of a trend as the main basics of contemporary technical analysis.
Technical analysis is a way to forecast probable price movement with the help of market movement charts reflecting the history of fluctuations. Practical usage of technical analysis determines several axioms.
Axiom 1
Every price formation factor, - economical, political, psychological has been taken into account and reflected on the chart. Once news is issued, market prices will move to reflect this new information.
Axiom 2
Price movement has got its direction. This suggestion has become a basis in all the techniques of technical analysis. The main purpose of technical analysis is defining of probable rate movement (trends in other words) and to apply acquired knowledge in trading. The definition given by Dow says that during bullish trend each consequent peak and fall is higher than the previous one. This suggestion is the main fundamental principle of technical analysis. Trends are classified into three types: bullish (upside movement), bearish (downside movement) and sideway trading (the price remains practically unchanged). Each of the given types is rarely encountered in its pure form, as straight price actions occur not very often in the market.
A certain trend is seen until some signs delivering opposite direction appear. According to Dow, trends exist in spite of market noise. However, in real practice it is not easy to determine whether a reversal is a starting point for a new trend or just a temporary movement. Contemporary technical tools permit traders to define it with easy, however, different traders interpret trend signals differently.
Analysts predict if a certain rule worked in the past, this rule may be applicable in future as the price is formed mostly due to human psychology. These are the main fundamental ideas of technical analysis:
Rate takes everything into account, therefore, everything needed to master this field is to study price charts. The aim is to find out trends at their initial phases, to recognize a trend and to use the knowledge in further development making right decisions. And the last idea is that if something worked in the past, it will probably work in future.
The Dow theory denotes the "main movement", the "medium swing" and the "short swing". The "main movement" is a prevailing component as it may last for several years. The "medium swing" is a correction to the main movement and should last from ten days to three months. The "short swing" or minor movement fluctuations may last up to three weeks.
According to the theory market moving averages must confirm each other and every thend should be confirmed by volume. Dow assumed that volume confirmed every price trend.
Many modern technical analysts treat Dow Theory's definition of a trend as the main basics of contemporary technical analysis.
Thursday, February 12, 2009
4 Forex Trading Signals For Successful Trading
Below are some of the forex trading tips that may get you started in trading.
Moving Average Crossovers - This is one of the most common forex trading signals that the traders will use to detect the trend of the market. When the short-term moving average e.g. 6 EMA crosses up the longer-term moving average e.g. 23 EMA, it means that the average price in the short run is higher than that of the average price in the longer run, so we will be looking to buy t he currency pair. Vice versa for the scenario of selling the pair. This is a bullish and bearish situation of a trend.
Stochastic - Another common forex indicator. You should buy on the first sign when the stochastic cross up from the oversold, and then sell on the first sign when the stochastic cross down from the overbought. This forex strategy means that you'll be with the trend and have successfully identified a positive move that still has some way to go. Shorter term stochastic settings means that it is more sensitive and therefore results in more whipsaws.
One major pair is all that counts - EURUSD is one of the four major currency pairs and we should be looking to trade that if you are a beginner. If the pair is trading higher, you should not buy GBPUSD also because it appears not to have moved yet. Focus on one major pair at a time - if GBPUSD looks good to you, then just buy GBPUSD.
Use Fibonacci - Using the Fibonacci sequence involves a series of numbers. It progresses like this 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and into infinity. There are numeral interrelationships within these numerals. For example, take any number; it is roughly 1.618 times the number before it. We use this kind of forex trading strategies as it is the fundamental strategy of profitable investing.
Moving Average Crossovers - This is one of the most common forex trading signals that the traders will use to detect the trend of the market. When the short-term moving average e.g. 6 EMA crosses up the longer-term moving average e.g. 23 EMA, it means that the average price in the short run is higher than that of the average price in the longer run, so we will be looking to buy t he currency pair. Vice versa for the scenario of selling the pair. This is a bullish and bearish situation of a trend.
Stochastic - Another common forex indicator. You should buy on the first sign when the stochastic cross up from the oversold, and then sell on the first sign when the stochastic cross down from the overbought. This forex strategy means that you'll be with the trend and have successfully identified a positive move that still has some way to go. Shorter term stochastic settings means that it is more sensitive and therefore results in more whipsaws.
One major pair is all that counts - EURUSD is one of the four major currency pairs and we should be looking to trade that if you are a beginner. If the pair is trading higher, you should not buy GBPUSD also because it appears not to have moved yet. Focus on one major pair at a time - if GBPUSD looks good to you, then just buy GBPUSD.
Use Fibonacci - Using the Fibonacci sequence involves a series of numbers. It progresses like this 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and into infinity. There are numeral interrelationships within these numerals. For example, take any number; it is roughly 1.618 times the number before it. We use this kind of forex trading strategies as it is the fundamental strategy of profitable investing.
Video On Fibonacci Trading
Hi, today I posted a video on Fibonacci. Hope you can learn something from here. If you want the full forex education on Fibonacci, please visit this blog at Forex Trading Tips.
Sunday, December 28, 2008
Forex Trading Introduction
The Foreign Exchange market, is also known as "Forex", "Forex Trading" , "FX" OR "Spot FX". The Currency trading market is the largest financial market in the world, with a volume of over $4 trillion a day. and it is non comparable to the stock exchange market with only $25 billion a day volume.
Forex trading usually deal with 4 major pairs: EUR/USD , USD/JPY, GBP/USD and USD/CHF. These major pairs are considered as Forex market's "blue chips". we do not receive any dividends on the currencies. We only Buy and Sell the fx currency pairs. The Forex market is open 24 hours a day, which allows traders to open or close their positions at any point in time. The Forex market has narrow spreads on more liquid currency pairs and have almost no price gaps.
Currency or forex trading is not a market in the traditional sense because there is no central trading location. Most of the trading is conducted by telephone or through electronic trading networks.
The primary market for currencies is where banks, insurance companies, large corporations and other large financial institutions manage the risks associated with fluctuations in currency rates. The true interbank market is only available to institutions that trade in large quantities and have a very high net worth.
In recent years, the OTC market that has developed over the years permits retail investors to participate in forex transactions. Last time, only traders with very huge capital or institutions or banks are able to trade forex. The Forex market has a higher leveraged trading compared to other financial instruments.
Forex transactions are quoted in pairs because you are buying one currency while selling another simultaneuosly. The first currency is the base currency and the second currency is the quote currency. For example, if EUR/USD has an ask price of 1.2000, you can buy one Euro for 1.2000 US dollars.
Some of the firms may charge a per trade commission, while some other firms only earn through the spread between the bid and ask prices they give their customers. In the earlier example, assume that the dealer can get a EUR/USD spread of 1.2000/02 from a bank. If the dealer widens the spread to 1.2000/08 for its clients, the dealer has marked up the spread by .0005 on each side.
One website that I came acroos that provides good forex education, forex tips, forex trading systems, forex trading tutorials is http://www.babypips.com
Forex trading usually deal with 4 major pairs: EUR/USD , USD/JPY, GBP/USD and USD/CHF. These major pairs are considered as Forex market's "blue chips". we do not receive any dividends on the currencies. We only Buy and Sell the fx currency pairs. The Forex market is open 24 hours a day, which allows traders to open or close their positions at any point in time. The Forex market has narrow spreads on more liquid currency pairs and have almost no price gaps.
Currency or forex trading is not a market in the traditional sense because there is no central trading location. Most of the trading is conducted by telephone or through electronic trading networks.
The primary market for currencies is where banks, insurance companies, large corporations and other large financial institutions manage the risks associated with fluctuations in currency rates. The true interbank market is only available to institutions that trade in large quantities and have a very high net worth.
In recent years, the OTC market that has developed over the years permits retail investors to participate in forex transactions. Last time, only traders with very huge capital or institutions or banks are able to trade forex. The Forex market has a higher leveraged trading compared to other financial instruments.
Forex transactions are quoted in pairs because you are buying one currency while selling another simultaneuosly. The first currency is the base currency and the second currency is the quote currency. For example, if EUR/USD has an ask price of 1.2000, you can buy one Euro for 1.2000 US dollars.
Some of the firms may charge a per trade commission, while some other firms only earn through the spread between the bid and ask prices they give their customers. In the earlier example, assume that the dealer can get a EUR/USD spread of 1.2000/02 from a bank. If the dealer widens the spread to 1.2000/08 for its clients, the dealer has marked up the spread by .0005 on each side.
One website that I came acroos that provides good forex education, forex tips, forex trading systems, forex trading tutorials is http://www.babypips.com
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