Before you consider investing in any type of market, you should really take a long hard look at your current situation.
Investing in the future is a good thing, but clearing up bad – or potentially bad – situations in the present is more important.
Especially if you consider to get your feet wet in currency trading, make sure you make your own financial balance first.
Pull your credit report.
You should do this once each year. It is important to know what is on your report, and to clear up any negative items on your credit report as soon as possible. If you’ve set aside $25,000 to invest, but you have $25,000 worth of bad credit, you are better off cleaning up the credit first!
Next, look at what you are paying out each month, and get rid of expenses that are not necessary. For instance, high interest credit cards are not necessary. Pay them off and get rid of them. If you have high interest outstanding loans, pay them off as well.
If nothing else, exchange the high interest credit card for one with lower interest and refinance high interest loans with loans that are lower interest. You may have to use some of your investment funds to take care of these matters, but in the long run, you will see that this is the wisest course of action.
Get yourself into good financial shape – and then enhance your financial situation with sound investments.
It doesn’t make sense to start investing funds if your bank balance is always running low or if you are struggling to pay your monthly bills. Your investment dollars will be better spent to rectify adverse financial issues that affect you each day.
While you are in the process of clearing up your present financial situation, make it a point to educate yourself about the various types of investments.
This way, when you are in a financially sound situation, you will be armed with the knowledge that you need to make equally sound investments in your future.
2008/02/21
technical analysis:History of candlesticks
Candlesticks and History
Candlestick charting can be traced back to the 1700's as a tool used for rice trading. One of the great rice traders of the 1800's, Homma is widely credited for developing the candlestick charting basics used today.
In the west, Candlestick Charting has grown in popularity and use, thanks to the efforts of Steve Nisson and Greg Morris.
Candlestick charts are visually appealing and can be a valuable tool in the technicians toolbox as it gives insight into current investor sentiment, allowing for the determination of short term tops and bottoms.
Candlestick charting can be traced back to the 1700's as a tool used for rice trading. One of the great rice traders of the 1800's, Homma is widely credited for developing the candlestick charting basics used today.
In the west, Candlestick Charting has grown in popularity and use, thanks to the efforts of Steve Nisson and Greg Morris.
Candlestick charts are visually appealing and can be a valuable tool in the technicians toolbox as it gives insight into current investor sentiment, allowing for the determination of short term tops and bottoms.
2008/02/19
There are many different styles of traders in the Forex market. From day trading to long-term trading, the styles and approaches vary greatly among the large number of traders in the Forex market.
Swing trading (or momentum trading) is a trading style in which the trader holds open positions for a few hours up to a few days. This is very different from day traders who rarely hold an open position for more than a day. It is also different from long-term traders who can hold open positions for months. Swing trading is a considered a medium-term trading style. As with any trading style, swing trading requires discipline and clearly defined goals.
Swing traders look for trends in currency price movement. Price direction is very important for swing traders. They hope to get in at the start of a trend or join a trend in progress in order to profit from significant price movements of currencies. However, recognizing that trends don’t last indefinitely, the swing trader will have clearly defined parameters for entering and exiting a trade.
Swing traders possess many of the same skills that day traders exhibit. However, they also have a broader perspective on the market. They perform extensive research and analysis, and are patient and disciplined to work within the parameters of their trading system. Forecasting is their strongest tool as they are seeking profits from the direction that a currency pair moves. They often have nail-biting sessions in which trades appear to be moving against them, then reverse and take them into profitability. Swing traders look for larger profits than day traders; they seek a minimum of 50 to 100 pips on each trade. However, they will take smaller profits if they accumulate quickly. If their trade enters their “loss zone,” swing traders will exit the trade without hesitation.
Five Guidelines for Swing Trading
Get the big picture.
Swing traders must know how the market is acting and reacting. Using fundamental analysis and technical tools and indicators can help the swing trader to forecast more accurately the direction of a currency pair. However, the fundamental data will provide the most accurate information on the demand for a particular currency, which will show the direction in which it is likely to move.
Use technical analysis.
A trading opportunity is often spotted using charts, trend lines, and support and resistance levels. Entry and exit points are more easily determined when using technical indicators that can show everything from resistance and support levels to whether a currency is overbought or oversold. Fundamentals that provide the big picture will not give the trader the entry and exit points for a trade. Using technical analysis is critical so that the trader can determine whether a trade is ripe for entry and when to take the maximum profit.
Know trading events and data.
Certain economic events and data can make the currencies trend in a certain direction. Central bank announcements, certain economic reports, and other market-moving news items can lead to short-term trends lasting anywhere from an hour to several days. Swing traders need to be aware of these events so they can take the maximum profit from the currency price movement.
Know the risk-reward ratio.
Like day traders, swing traders must know the risk-reward ratio on every trade. Since more time is usually spent on research and analysis in swing trading, the opportunity to perform this quick analysis will arise and should be taken. Since swing traders will hold an open position for a few hours to a few days, their exposure is greater than day traders. Greater exposure (or risk) means that the potential reward should also be greater. A good risk-reward ratio for swing trading is 3:1 or 4:1. A swing trader should never enter a trade when the risk-reward ratio is 2:1 or 1:1.
Trade currency pairs that are showing a strong trend.
A currency pair can either move in a trend or within a range. Swing traders need currencies to move in a particular direction. In other words, the currency must be showing a strong and reliable trend. The best way to determine whether a currency pair is trending is through the use of charts. Visual tools can clearly show if a currency is experiencing a trend.
Many swing traders also use trend lines to delineate the trending pattern of a currency. The best way to determine the strength of a trend is through the Average Directional Index (or ADX) number. When the ADX number is high, trend is strong. When the number is low, the trend is weak or nonexistent. Ideally, swing traders are looking for currency pairs with an ADX number of 30 or more.
Is Swing Trading the way to go for you?
Does this disciplined, patient, and research-oriented trading style appeal to you? Most retail traders in the Forex market are swing traders to various degrees. It is a slower pace than day trading, but is more research-intensive. Also, a swing trader must forecast with reasonable accuracy the future direction of a currency. Or he must find a reliable trend to join and profit from.
If swing trading sounds like it is consistent with your time, money, and personal commitments, it can be a great way to enter the Forex market.
Swing trading (or momentum trading) is a trading style in which the trader holds open positions for a few hours up to a few days. This is very different from day traders who rarely hold an open position for more than a day. It is also different from long-term traders who can hold open positions for months. Swing trading is a considered a medium-term trading style. As with any trading style, swing trading requires discipline and clearly defined goals.
Swing traders look for trends in currency price movement. Price direction is very important for swing traders. They hope to get in at the start of a trend or join a trend in progress in order to profit from significant price movements of currencies. However, recognizing that trends don’t last indefinitely, the swing trader will have clearly defined parameters for entering and exiting a trade.
Swing traders possess many of the same skills that day traders exhibit. However, they also have a broader perspective on the market. They perform extensive research and analysis, and are patient and disciplined to work within the parameters of their trading system. Forecasting is their strongest tool as they are seeking profits from the direction that a currency pair moves. They often have nail-biting sessions in which trades appear to be moving against them, then reverse and take them into profitability. Swing traders look for larger profits than day traders; they seek a minimum of 50 to 100 pips on each trade. However, they will take smaller profits if they accumulate quickly. If their trade enters their “loss zone,” swing traders will exit the trade without hesitation.
Five Guidelines for Swing Trading
Get the big picture.
Swing traders must know how the market is acting and reacting. Using fundamental analysis and technical tools and indicators can help the swing trader to forecast more accurately the direction of a currency pair. However, the fundamental data will provide the most accurate information on the demand for a particular currency, which will show the direction in which it is likely to move.
Use technical analysis.
A trading opportunity is often spotted using charts, trend lines, and support and resistance levels. Entry and exit points are more easily determined when using technical indicators that can show everything from resistance and support levels to whether a currency is overbought or oversold. Fundamentals that provide the big picture will not give the trader the entry and exit points for a trade. Using technical analysis is critical so that the trader can determine whether a trade is ripe for entry and when to take the maximum profit.
Know trading events and data.
Certain economic events and data can make the currencies trend in a certain direction. Central bank announcements, certain economic reports, and other market-moving news items can lead to short-term trends lasting anywhere from an hour to several days. Swing traders need to be aware of these events so they can take the maximum profit from the currency price movement.
Know the risk-reward ratio.
Like day traders, swing traders must know the risk-reward ratio on every trade. Since more time is usually spent on research and analysis in swing trading, the opportunity to perform this quick analysis will arise and should be taken. Since swing traders will hold an open position for a few hours to a few days, their exposure is greater than day traders. Greater exposure (or risk) means that the potential reward should also be greater. A good risk-reward ratio for swing trading is 3:1 or 4:1. A swing trader should never enter a trade when the risk-reward ratio is 2:1 or 1:1.
Trade currency pairs that are showing a strong trend.
A currency pair can either move in a trend or within a range. Swing traders need currencies to move in a particular direction. In other words, the currency must be showing a strong and reliable trend. The best way to determine whether a currency pair is trending is through the use of charts. Visual tools can clearly show if a currency is experiencing a trend.
Many swing traders also use trend lines to delineate the trending pattern of a currency. The best way to determine the strength of a trend is through the Average Directional Index (or ADX) number. When the ADX number is high, trend is strong. When the number is low, the trend is weak or nonexistent. Ideally, swing traders are looking for currency pairs with an ADX number of 30 or more.
Is Swing Trading the way to go for you?
Does this disciplined, patient, and research-oriented trading style appeal to you? Most retail traders in the Forex market are swing traders to various degrees. It is a slower pace than day trading, but is more research-intensive. Also, a swing trader must forecast with reasonable accuracy the future direction of a currency. Or he must find a reliable trend to join and profit from.
If swing trading sounds like it is consistent with your time, money, and personal commitments, it can be a great way to enter the Forex market.
2008/01/30
Choosing a broker
The forex (FX) market has many similarities to the equity markets; however, there are some key differences. This article will show you those differences and help you get started in forex trading.
There are many forex brokers to choose from, just as in any other market. Here are some things to look for:
Low Spreads - The spread, calculated in "pips", is the difference between the price at which a currency can be purchased and the price at which it can be sold at any given point in time. Forex brokers don't charge a commission, so this difference is how they make money. In comparing brokers, you will find that the difference in spreads in forex is as great as the difference in commissions in the stock arena.
Bottom line: Lower spreads save you money!
Quality Institution - Unlike equity brokers, forex brokers are usually tied to large banks or lending institutions because of the large amounts of capital required (leverage they need to provide). Also, forex brokers should be registered with the Futures Commission Merchant (FCM) and regulated by the Commodity Futures Trading Commission (CFTC). You can find this and other financial information and statistics about a forex brokerage on its website or on the website of its parent company.
Bottom line: Make sure your broker is backed by a reliable institution!
Extensive Tools and Research - Forex brokers offer many different trading platforms for their clients - just like brokers in other markets. These trading platforms often feature real-time charts, technical analysis tools, real-time news and data, and even support for trading systems. Before committing to any broker, be sure to request free trials to test different trading platforms. Brokers usually also provide technical and fundamental commentaries, economic calendars and other research.
Bottom line: Find a broker who will give you what you need to succeed!
Wide Range of Leverage Options - Leverage is necessary in forex because the price deviations (the sources of profit) are merely fractions of a cent. Leverage, expressed as a ratio between total capital available to actual capital, is the amount of money a broker will lend you for trading. For example, a ratio of 100:1 means your broker would lend you $100 for every $1 of actual capital. Many brokerages offer as much as 250:1.
Remember, lower leverage means lower risk of a margin call, but also lower bang for your buck (and vice-versa).
Bottom line: If you have limited capital, make sure your broker offers high leverage. If capital is not a problem, any broker with a wide variety of leverage options should do. A variety of options lets you vary the amount of risk you are willing to take. For example, less leverage (and therefore less risk) may be preferable for highly volatile (exotic) currency pairs.
Account Types - Many brokers offer two or more types of accounts. The smallest account is known as a mini account and requires you to trade with a minimum of, say, $250, offering a high amount of leverage (which you need in order to make money with so little initial capital). The standard account lets you trade at a variety of different leverages, but it requires a minimum initial capital of $2,000. Finally, premium accounts, which often require significant amounts of capital, let you use different amounts of leverage and often offer additional tools and services.
Bottom line: Make sure the broker you choose has the right leverage, tools, and services relative to your amount of capital.
Bottom line: Talk to others in person or visit online discussion forums to find out who is an honest broker.
Strict Margin Rules - When you are trading with borrowed money, your broker has a say in how much risk you take. As such, your broker can buy or sell at its discretion, which can be a bad thing for you. Let's say you have a margin account, and your position takes a dive before rebounding to all-time highs. Well, even if you have enough cash to cover, some brokers will liquidate your position on a margin call at that low. This action on their part can cost you dearly.
Bottom line: Again, talk to others in person or visit online discussion forums to find out who the honest brokers are.
Signing up for a forex account is much the same as getting an equity account. The only major difference is that, for forex accounts, you are required to sign a margin agreement. This agreement states that you are trading with borrowed money, and, as such, the brokerage has the right to interfere with your trades to protect its interests. Once you sign up, simply fund your account, and you'll be ready to trade!
Fundamental Analysis
If you think it's difficult to value one company, try valuing a whole country! Fundamental analysis in the forex market is often very complex, and it's usually used only to predict long-term trends; however, some traders do trade short term strictly on news releases. There are many different fundamental indicators of currency values released at many different times. Here are a few:
Non-farm Payrolls
Purchasing Managers Index (PMI)
Consumer Price Index (CPI)
Retail Sales
Durable Goods
Now, these reports are not the only fundamental factors to watch. There are also several meetings from which come quotes and commentary that can affect markets just as much as any report. These meetings are often called to discuss interest rates, inflation, and other issues that affect currency valuations. Even changes in wording when addressing certain issues - the Federal Reserve chairman's comments on interest rates, for example - can cause market volatility. Two important meetings to watch are the Federal Open Market Committee and Humphrey Hawkins Hearings.
Simply reading the reports and examining the commentary can help forex fundamental analysts gain a better understanding of long-term market trends and allow short-term traders to profit from extraordinary happenings. If you choose to follow a fundamental strategy, be sure to keep an economic calendar handy at all times so you know when these reports are released. Your broker may also provide real-time access to such information.
Technical Analysis
Like their counterparts in the equity markets, technical analysts of the forex analyze price trends. The only key difference between technical analysis in forex and technical analysis in equities is the time frame: forex markets are open 24 hours a day. As a result, some forms of technical analysis that factor in time must be modified to work with the 24-hour forex market. These are some of the most common forms of technical analysis used in forex:
The Elliott Waves
Fibonacci studies
Parabolic SAR
Pivot points
Many technical analysts combine technical studies to make more accurate predictions. (The most common is combining the Fibonacci studies with Elliott Waves.) Others create trading systems to repeatedly locate similar buying and selling conditions.
Things to Remember
Open a demo account and paper trade until you can make a consistent profit - Many people jump into the forex market and quickly lose a lot of money (because of leverage). It is important to take your time and learn to trade properly before committing capital. The best way to learn is by doing!
Trade without emotion - Don't keep "mental" stop-loss points if you don't have the ability to execute them on time. Always set your stop-loss and take-profit points to execute automatically, and don't change them unless absolutely necessary. Make your decisions and stick to them!
The trend is your friend – If you go against the trend, you had better have a good reason. Because the forex market tends to trend more than move sideways, you have a higher chance of success in trading with the trend.
Conclusion
The forex market is the largest market in the world, and individuals are becoming increasingly interested in it. But before you begin trading it, be sure your broker meets certain criteria, and take the time to find a trading strategy that works for you. Remember, the best way to learn to trade forex is to open up a demo account and try it out.
There are many forex brokers to choose from, just as in any other market. Here are some things to look for:
Low Spreads - The spread, calculated in "pips", is the difference between the price at which a currency can be purchased and the price at which it can be sold at any given point in time. Forex brokers don't charge a commission, so this difference is how they make money. In comparing brokers, you will find that the difference in spreads in forex is as great as the difference in commissions in the stock arena.
Bottom line: Lower spreads save you money!
Quality Institution - Unlike equity brokers, forex brokers are usually tied to large banks or lending institutions because of the large amounts of capital required (leverage they need to provide). Also, forex brokers should be registered with the Futures Commission Merchant (FCM) and regulated by the Commodity Futures Trading Commission (CFTC). You can find this and other financial information and statistics about a forex brokerage on its website or on the website of its parent company.
Bottom line: Make sure your broker is backed by a reliable institution!
Extensive Tools and Research - Forex brokers offer many different trading platforms for their clients - just like brokers in other markets. These trading platforms often feature real-time charts, technical analysis tools, real-time news and data, and even support for trading systems. Before committing to any broker, be sure to request free trials to test different trading platforms. Brokers usually also provide technical and fundamental commentaries, economic calendars and other research.
Bottom line: Find a broker who will give you what you need to succeed!
Wide Range of Leverage Options - Leverage is necessary in forex because the price deviations (the sources of profit) are merely fractions of a cent. Leverage, expressed as a ratio between total capital available to actual capital, is the amount of money a broker will lend you for trading. For example, a ratio of 100:1 means your broker would lend you $100 for every $1 of actual capital. Many brokerages offer as much as 250:1.
Remember, lower leverage means lower risk of a margin call, but also lower bang for your buck (and vice-versa).
Bottom line: If you have limited capital, make sure your broker offers high leverage. If capital is not a problem, any broker with a wide variety of leverage options should do. A variety of options lets you vary the amount of risk you are willing to take. For example, less leverage (and therefore less risk) may be preferable for highly volatile (exotic) currency pairs.
Account Types - Many brokers offer two or more types of accounts. The smallest account is known as a mini account and requires you to trade with a minimum of, say, $250, offering a high amount of leverage (which you need in order to make money with so little initial capital). The standard account lets you trade at a variety of different leverages, but it requires a minimum initial capital of $2,000. Finally, premium accounts, which often require significant amounts of capital, let you use different amounts of leverage and often offer additional tools and services.
Bottom line: Make sure the broker you choose has the right leverage, tools, and services relative to your amount of capital.
Things To Avoid when chosing a broker
Sniping or Hunting - Sniping and hunting - or prematurely buying or selling near preset points - are shady acts committed by brokers to increase profits. Obviously, no broker admits to committing these acts, but a notion that a broker has practiced sniping or hunting is commonly believed to be true. Unfortunately, the only way to determine which brokers do this and which brokers don't is to talk to fellow traders. There is no blacklist or organization that reports such activity.Bottom line: Talk to others in person or visit online discussion forums to find out who is an honest broker.
Strict Margin Rules - When you are trading with borrowed money, your broker has a say in how much risk you take. As such, your broker can buy or sell at its discretion, which can be a bad thing for you. Let's say you have a margin account, and your position takes a dive before rebounding to all-time highs. Well, even if you have enough cash to cover, some brokers will liquidate your position on a margin call at that low. This action on their part can cost you dearly.
Bottom line: Again, talk to others in person or visit online discussion forums to find out who the honest brokers are.
Signing up for a forex account is much the same as getting an equity account. The only major difference is that, for forex accounts, you are required to sign a margin agreement. This agreement states that you are trading with borrowed money, and, as such, the brokerage has the right to interfere with your trades to protect its interests. Once you sign up, simply fund your account, and you'll be ready to trade!
Define a Basic Forex Strategy
Technical analysis and fundamental analysis are the two basic genres of strategy in the forex market - just like in the equity markets. But technical analysis is by far the most common strategy used by individual forex traders. Here is a brief overview of both forms of analysis and how they apply to forex:Fundamental Analysis
If you think it's difficult to value one company, try valuing a whole country! Fundamental analysis in the forex market is often very complex, and it's usually used only to predict long-term trends; however, some traders do trade short term strictly on news releases. There are many different fundamental indicators of currency values released at many different times. Here are a few:
Non-farm Payrolls
Purchasing Managers Index (PMI)
Consumer Price Index (CPI)
Retail Sales
Durable Goods
Now, these reports are not the only fundamental factors to watch. There are also several meetings from which come quotes and commentary that can affect markets just as much as any report. These meetings are often called to discuss interest rates, inflation, and other issues that affect currency valuations. Even changes in wording when addressing certain issues - the Federal Reserve chairman's comments on interest rates, for example - can cause market volatility. Two important meetings to watch are the Federal Open Market Committee and Humphrey Hawkins Hearings.
Simply reading the reports and examining the commentary can help forex fundamental analysts gain a better understanding of long-term market trends and allow short-term traders to profit from extraordinary happenings. If you choose to follow a fundamental strategy, be sure to keep an economic calendar handy at all times so you know when these reports are released. Your broker may also provide real-time access to such information.
Technical Analysis
Like their counterparts in the equity markets, technical analysts of the forex analyze price trends. The only key difference between technical analysis in forex and technical analysis in equities is the time frame: forex markets are open 24 hours a day. As a result, some forms of technical analysis that factor in time must be modified to work with the 24-hour forex market. These are some of the most common forms of technical analysis used in forex:
The Elliott Waves
Fibonacci studies
Parabolic SAR
Pivot points
Many technical analysts combine technical studies to make more accurate predictions. (The most common is combining the Fibonacci studies with Elliott Waves.) Others create trading systems to repeatedly locate similar buying and selling conditions.
Finding Your Strategy
Most successful traders develop a strategy and perfect it over time. Some people focus on one particular study or calculation, while others use broad spectrum analysis to determine their trades. Most experts suggest trying a combination of both fundamental and technical analysis, with which you can make long-term projections and also determine entry and exit points. But in the end, it is the individual trader who needs to decide what works best for him or her (most often through trial and error).Things to Remember
Open a demo account and paper trade until you can make a consistent profit - Many people jump into the forex market and quickly lose a lot of money (because of leverage). It is important to take your time and learn to trade properly before committing capital. The best way to learn is by doing!
Trade without emotion - Don't keep "mental" stop-loss points if you don't have the ability to execute them on time. Always set your stop-loss and take-profit points to execute automatically, and don't change them unless absolutely necessary. Make your decisions and stick to them!
The trend is your friend – If you go against the trend, you had better have a good reason. Because the forex market tends to trend more than move sideways, you have a higher chance of success in trading with the trend.
Conclusion
The forex market is the largest market in the world, and individuals are becoming increasingly interested in it. But before you begin trading it, be sure your broker meets certain criteria, and take the time to find a trading strategy that works for you. Remember, the best way to learn to trade forex is to open up a demo account and try it out.
Free Forex Trading with a demo account: The Best Way To Start A Successful Trading Career
The Forex market is known around the world by its high liquidity and high volume of transactions occurring during most of its long trading week. This makes the transactions conducted in this market potentially highly profitable.
But before anyone can enter the forex market and make some money he has to learn the ropes of the trade.
But how do you do that? The answer is: By trading the forex for free.
Yes, its true, you can trade the forex markets for free and using the same state-of-the-art software packages that professional Forex traders use to help them make real-time, live currency trades.
You will also experience the same dynamic market action and the same process of making decisions, reacting to charting patterns, and tracking the performance of your forex trading system the same way professional traders do.
All this can be done even if you don't put any real money into your account.
This means that in the beginning every new forex trader needs to start Demo-Trading.
This will be of great help when you are new to forex trading.
By placing demo trades, you will learn a lot about how Forex transactions work.
This is a very important step for you in order to be able to learn how to become a trader.
A demo account allows one to become familiar with trading procedures, such as placing Market, Limit, Stop, Orders without any risk.
Of course all dollar losses or gains using a demo account are imaginary but, as mentioned above, the trading experience you acquire is not.
Making big gains in a demo-account does not guarantee profits in live trading; however, those who are not successful trading on paper rarely are successful when money is on the line.
Once you sign up for a demo account, you will need to try one of the charting packages from the broker you will be using.
Any demo software you choose will do because they all have the necessary indicator tools you need. Once you have downloaded the software you can then set up your demo account and start drawing trendlines, marking support & resistance levels, monitoring moving averages, etc.
Once you have a real trading system, you will already know how to place orders properly.
But before anyone can enter the forex market and make some money he has to learn the ropes of the trade.
But how do you do that? The answer is: By trading the forex for free.
Yes, its true, you can trade the forex markets for free and using the same state-of-the-art software packages that professional Forex traders use to help them make real-time, live currency trades.
You will also experience the same dynamic market action and the same process of making decisions, reacting to charting patterns, and tracking the performance of your forex trading system the same way professional traders do.
All this can be done even if you don't put any real money into your account.
This means that in the beginning every new forex trader needs to start Demo-Trading.
This will be of great help when you are new to forex trading.
By placing demo trades, you will learn a lot about how Forex transactions work.
This is a very important step for you in order to be able to learn how to become a trader.
A demo account allows one to become familiar with trading procedures, such as placing Market, Limit, Stop, Orders without any risk.
Of course all dollar losses or gains using a demo account are imaginary but, as mentioned above, the trading experience you acquire is not.
Making big gains in a demo-account does not guarantee profits in live trading; however, those who are not successful trading on paper rarely are successful when money is on the line.
Once you sign up for a demo account, you will need to try one of the charting packages from the broker you will be using.
Any demo software you choose will do because they all have the necessary indicator tools you need. Once you have downloaded the software you can then set up your demo account and start drawing trendlines, marking support & resistance levels, monitoring moving averages, etc.
Once you have a real trading system, you will already know how to place orders properly.
2008/01/03
Daytrading the Forex market
The foreign exchange market (the forex) can be a treacherous market to trade especially if you are not properly equipped for the job.
You will need to give attention to the following: the equipment and type of internet connection you have;
- the overall amount of capital you can put at risk on this enterprise, as well as the amount of capital you are prepared to risk on any one trade;
- your broker and the reliability of the trading platform;
- charts and technical analysis;
- good entry and exit signals;
- being aware of news releases affecting this market;
- the need to use a stop loss on each trade to protect your position; the cutting of losses if a trade goes against you;
- and the compounding of profits.
You will ideally need minimum a Pentium 4 desktop computer running Windows XP with a processor speed of 2.5GHZ and 512MB of RAM.
The monitor needs to be at least 17", but 19" or bigger is better. You could get away with a 56K dial-up connection but broadband is usually far better in terms of stability.Some people have been known to trade this market successfully from a laptop which gives them mobility.
You will need a minimum of $20,000 risk capital to trade this market. "Risk capital" means that it doesn't include money you require for living from month to month, and therefore you can employ it in the market for speculative purposes. The reason for the entry figure being so high is that it is inadvisable to risk more than 3% of your total risk capital on any one trade. On this basis, the most you should be putting at risk on any one trade is $600 ( that is $20,000 X 3%) using full lots. You could start with a lesser amount of risk capital by using mini lots and still maintain the maximum 3% loss any one trade.
You will need to choose a broker wisely for two reasons: his financial stability; and the stability of the platform he provides. It is best to chose a broker with a proven record in the forex market operating from a well-regulated country such as the USA, UK or Switzerland.
This market was only opened up to speculators in 1997, so forex brokers haven't got as long a history as stockbrokers.It is therefore best to chose on the basis of size -you are looking a broker with at least 10,000 clients operating from one of the aforementioned countries.
The functionality of the platform the broker provides is important for the execution and tracking of live trades. What you don't want is a platform that always keeps going down at crucial moments in your trading day. In my experience, the platforms belonging the the major brokers are now very reliable although there might be a problem with the continuity of data displayed from time to time.
People who trade the forex market off fundamental analysis have been known to stay in the positions taken for multiple days, weeks, months or even years. If you are daytrading this market, however, you haven't got much choice but to use technical analysis as the basis of your decisions. Therefore charts become vitally important in the decision making process. Candlestick charts are the easiest to follow on the screen as it simple to distinguish a bull candle from a bear one just by viewing the different colors.
With charts,especially at the start of your trading day, it is best to use the top-down approach.Even though your entry and exits may be made off the 15 minute chart, you should start the day by looking at the daily chart to get the big picture. Then the 4 hour chart, the hour chart and 30 minute can each in turn be consulted prior to your regular chart (the 15 minute) in order to get the top-down perspective on the market.
Breakouts from support or resistance offer good entry points for trades. A support line can be drawn by joining the bottoms of two candles that stand lower than their immediate neighbors remembering that the support line must be tilted upwards therefore the nearest candle the line is connected to must be higher than the further away one. If this line is then extended into the future and is confirmed by a third candle touching the line you have a solid support line.
When a candle breaks this support line and a 15 minute candle closes below it and subsequent candles go 5 pips (or points) beyond the bottom of the candle which broke the support line, you have a valid entry point for a short trade (thatis selling the currency pair being traded). Resistance lines are done on the same basis except that the initial line drawn must have a downward slope which when broken, and the the other criteria for entry is met, gives you a valid long entry (that is buying the currency pair being traded).
Before you start your trading day, it is imperative that the daytrader knows when economic news affecting the currency pairs being traded is scheduled to be released.There are various websites that do this but the best one that I have found is http//www.dailyfx.com. If you go to their Home Page, and click on the Calendar tab at the top, a page will open with the words "Weekly Economic Calender for ....." on the top left hand side on which you click to take you to the page where all the scheduled news for the world's major currency pairs are listed on a daily basis. The times of the news releases are given in both GMT and EST so you may have to compensate depending on which time zone you happen to be in the world.Knowing when the news is going to be released is crucial, because depending on its strength is may be sensible if you are in a trade that is making a profit, to take profits before the news hits the wire, or at least tighten up your stop.
It is also sensible never to trade without a stop. For daytrading a stop in the region of 20 - 30 pips is sensible. This is the loss you are prepared to take on the trade if it goes against you. It is also sensible to set your profit objective higher than your loss by 25% -50% dependent upon the quality of the signal generated. Only risk 3% of your risk capital on any one trade. If you start off with $20,000 risk capital and after 4 months or so you have found that it has grown to $40,000, now use 2 lots per trade and thereby employ compounding.When you capital grows to $60,000, you would employ 3 lots and so forth. If your selection criteria is good your capital can build at a surprising rate using this technique.
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