Tuesday, September 30, 2008

Forex Trading and Risk Management

In foreign exchange trading, there are several different risk management plans and all of these include avoiding the positions within currencies that are going to have correlation such as the Euro and the British Pound. Based on the fact that the British Pound and Euro move in the exact same direction the forex trader should select a pairing of the United States dollar and another currency like the British Pound or Euro.

In foreign exchange trading, gambling is considered to be highly unprofessional and prohibited. One very intelligent risk management statistic is that if you lost money in a trade that you performed previous, don’t make another trade just to recoup, you should increase the next trade by maybe doubling or even tripling the volume of trade.

Within forex risk management it is considered to be obligatory for one to be able to control her or his emotion in placing trades and possesses a percentage of capital that can be risked as a really good forex trader. At the most, the percentage of capital should be at four percent. There are a lot of traders out there that don’t necessarily like to discuss losses but in all actuality, a good forex trader should take the time to think about what he or she may lose before taking any of the profits.

After having done this, the successful trader should then fix the entry price and the exit price. One particularly good way that a forex trader can do this is to place some type of qualification, in order to exit a trade strictly based on the changes that have been shown by some indicators either economic or fundamental and sometimes, even the news. Foreign exchange has been a secret of the financial institutions for a very long time and has high risks, but now it is available to the public as well, and because of that each forex trader should possess the ability to comprehend all options for purchasing and selling, so as a forex trader, you are going to need to react to all of these fluctuations in the currency promptly.

One final note would be that it is a lot better for a prospective forex trader to evolve personally and write down his or her very own set of guidelines. Even though there are some risks that are associated with forex trading, if you take the time to remain dedicated to foreign exchange trading and pay very close attention to the trades that take place as well as the entry and exit points, you will be able to be a very successful trader in the end.

You have to remember that in the world of forex trading, you have to know what you are doing in order to be successful and you can’t be successful by losing all of your capital on the first trade that you ever make. Always make sure that you only bid on the trade with the amount of money that you can financially afford to spare.

Tuesday, September 23, 2008

How to Accurately Identify Resistance and Support within the Forex Market

Within the forex market, resistance and support are two elements that are very important to each forex trader’s ability to successfully trade. In all actuality, the fact of the matter is that currency pairs sometimes gravitate to some very specific levels within the foreign exchange market. All of these levels are referred to as the resistance and support, both of these levels can help each forex trader to determine when he or she should enter into new trades and when to exit the exiting positions.

There are several different reasons that pairs of currency’s trade to certain levels. Businesses, like exporters and importers, make use of the currency market in order to hedge risks. Often, they will purchase and sell pairs of currencies at certain price levels in an effort to lock in all of their risk management.

On the other hand, the speculators like hedge funds, individual forex traders and the commercial banks, all try their best to pinpoint all of the natural levels in to which all of the currency pairs normally trade. Even the central banks, specifically those that often intervene in the foreign exchange market, will purchase and sell the currency pairs at certain levels.

As a forex trader, you should know that the key is to be able to accurately identify where all of these levels are and possessing the knowledge that is required to determine if these levels are broken. A trade is triggered by the breaking of the resistance and support level, so naturally having an accurate reading pertaining to all of these levels is highly important.

As a forex trader, there are several different techniques that can be used for determining the resistance and support levels. Among the techniques that are most popular within the foreign exchange market includes the pivot points, which range from monthly to hourly as well as the Fibonacci analysis. Many forex traders are a big fan of the pivot points because pivot points are considered to be more precise whereas, the Fibonacci analysis is considered to be extremely subjective.

The main concern with basing your resistance and support solely on the Fibonacci analysis is the ability to determine where you should start and stop all of the retracement levels. There isn’t anyone that has a very good answer to this, and each and every forex trader appears to use a totally different method, so it normally ends up being an extremely subjective technique.

Among the best and most accurate ways that are used in order to determine the resistance and support levels within the foreign exchange market is the use of figure and point charts. All of f these types of charts are constructed so that they have a certain set of rules that uses O’s and X’s in order to draw out the charts. Unlike the candlestick charts or the traditional charts, the figure and point charts are considered to be extremely precise when it comes to defining a specific level.

However, the trouble with the candlestick and bar charts is that you are going to have to use some type of subjectivity when you are drawing out all of your resistance and support levels.

Thursday, September 11, 2008

Is Forex Leverage, A Good or Bad Thing?

The main reason that the forex market is found so attractive is because the forex market presents the traders with several different advantages which don’t really exist within all of the other markets. Even though leverage is something that you as a trader will have access to in several markets other than the foreign exchange market, within the forex market, leverage is a lot more exponential.

Most of the time, the leverage is going to depend on the forex broker that you are currently using but normally the leverage is around 400:1 or either 200:1. In the event that you aren’t familiar with this particular concept, 200:1 would mean that if you have one thousand dollars in your forex trading account, you will have the ability to trade up to two hundred thousand dollars.

In order to determine whether or not leverage is a bad or good thing, let’s take a look at the disadvantages and advantages of using leverage. The advantage of this particular type of leverage that is most important is that leverage can make you a lot of money within a matter of no time. The more money that is involved within a trade means that you are going to earn more when you make a perfect trade. In the event that you use near-high or high leverage, you will be able to make some really large profits.

The major advantage in doing this is that you are going to always have some losing trades, it doesn’t matter what strategy or system you are using. As a forex trader, you can even be correct on a trade and then it starts going against you and as a result you lose. The lose part is meant to relate to your entire forex trading account. Yes, it is true; it is possibly for you to lose all of your account within a matter of one trade.

As a forex trader, the main question that you need to ask yourself is how much risk are you as a forex trader willing to take-on. In a situation where you are actually willing to risk your entire account in a single trade, you aren’t going to have any problem in using all of the leverage that you possibly can. However, if you are a beginner in the forex market, or if you are currently trying to achieve some consistency instead of gambling, then as a forex trader you should wisely use leverage.

All-in-all, leverage is a forex tool that you are able to use in order to maximize all of your profits. When you use leverage very carefully, you will be able to avoid losing your entire account within a single trade; however leverage can also help you as a trader to maximize all of your profits. Overall, it truly depends on how much risk you as a forex trader are willing to take.

In forex trading, you have to set some boundaries for your trades.

Thursday, September 4, 2008

How to Begin Forex Trading

Today, there is a whole bunch of noise surfacing, concerning the foreign exchange market, specifically because of the very high leverage that it allows all of the forex traders to trade and because of the fact that the forex market is always open. Even though the forex market has several advantages, it also has a couple of disadvantages as well. The main purpose of this article is to inform you on how you can arrange all of those disadvantages within your favor and really be successful within the forex market.

1) As a forex trader, you only should trade one single currency pair. Within the foreign exchange market, as a forex trader, you are going to have several different currency pairs that you can choose from. You may or may not already be aware of the “Majors” which are the currency pairs that have the lowest spread and the highest volume. The “Majors” are as follows: GBP/USD, USD/JPY, EUR/USD, and USD/CHF. By taking the time to choose one single currency pair, you are increasing your chances of really dominating it. As a forex trader, you should always try to gain all of the experience that you can from one single currency pair. In the event that you don’t know, most of the successful and professional forex traders only trade two currency pairs at the absolute most.

2) As a forex trader, you should trade within larger time frames. It doesn’t matter whether or not you re a beginner, an intermediate, or even an advanced forex trader, you more than likely have already began questioning yourself about the time frames that you should use. One thing you must understand in order to successful choose your time frames is that each and every trader has his or her own personality and his or her own time frame. In order to be success at this, all you need to do is adequate your own personality to the forex market, this is when you are going to be the most profitable.

3) Last, but not least, you need to use extremely good rules for money management. Whether you realize it or not, money management is a wonderful way for you to not only protect your forex trading account but for you to also allow your forex trading account to grow without taking too many different risks. In most cases, you shouldn’t ever risk more than two to five percent of your account within a single trade. When you think about it, you will see that in a situation where you are on a losing trading streak, this is going to protect your account. Whereas, if you are on a winning streak, this is going to allow your trading account to grow but it is going to minimize the risk.

Now that you know the basic of starting forex trading, you should be able to start successfully trading at anytime that you wish. Just make sure that you get some experience practicing with a demo account before you start risking any of your work capital.