Forex Trading has massively spread in the world and entered the world of economy and money from its widest doors, its has now a big name and many people are involved in it better yet even more people are getting interested in knowing more about it and try it.
Let me list here a few of the hottest ABC strategies in a simple way for beginners to understand but in a sophisticated manner for people who are already involved also can get the advantage of them.
Fast moving average crossover: it’s a very easy strategy to follow that will give you great results at the trending point of the market during the price break-outs and big moves.
It has some disadvantages: it can’t be used in other periods than the trending market period; it doesn’t predict the future and it maybe vulnerable requiring too much time from to watch any changes.
Low moving average crossover: also easy to follow with no requirements of calculations or studies, the program can be programmed and traded automatically, gives good results in the strong market moves period.
The disadvantages are: the crucial need of periodical monitoring through the chosen time frame, the SMA indicator will stop changing after the closure of the price bar.
Key simplicity: yes is a great simple easy strategy to do its just one look – one click strategy it’s the favorite strategy that is chosen by busy business men, its very simple all it takes is just a simple glance at the chart then a simple click to decide your move.
It has no disadvantages, it’s a daily system that follows new trends and the lagging EMA indicators are actually a plus as their pause is enough for a new trend to happen.
5×5 simple system: very simple strategy to follow yet very promising and discovered after a long time of experience, if implemented well it gives you impressive results just remember to enter the trade and take actions only after the signaling candle is closed.
Simple breakout system: this focuses on capturing an early price move before its starts to trend, you start with a period of one hour, then your try to find the highest and lowest price ranges, next just take the mouse and create two horizontal parallel lines that contains those extremes through them which will lead to making a tunnel.
After that you have many options like: locking in the profit, continue tracking the price, or just try to get out with in a series of three hourly time frame starting from the second that the order was loaded in.
In the end, the best strategy is the strategy you plan for your self according to your circumstances, time, and goals so before choosing a strategy set a plan for yourself.
Monday, February 2, 2009
Forex Trading Strategies
Advantages of Trading FOREX Over Stocks and Commodities
There are many advantages to Trading FOREX as your main income generator. Lets start by something that may be worrying you already.
Do I need a Diploma or some kind of Certification to trade FOREX? The answer is this:
When attempting to make more profit than losses on the fluctuation of exchange rates between major currencies (i.e., Trading the FOREX), nobody is going to ask you for a diploma, a formal license or verify the amount of hours you've spent studying the Foreign exchange market and banking industry. All you need is the proper training.
But this is not the only advantage you get when trading FOREX, compared to other ways of investment and speculation; i.e. Stocks and Commodities. You have a whole bunch of advantages over these other options that will be enumerated in the following paragraphs.
The Main Benefits of Trading the FX Spot Market:
1): FOREX is the largest financial market in the world.
With a daily trading volume of over $1.5 trillion, the spot FOREX market can absorb trading sizes that dwarf the capacity of any other market. In fact, when compared with the $50 billion daily market for equities or the $30 billion futures market, it becomes quickly apparent this gives you, and millions of other FOREX traders, almost infinite trading liquidity and flexibility.
2): FOREX is a TRUE 24-hour market.
The FOREX Market never sleeps. Trading positions can be entered and exited at any moment - around the globe, around the clock, six days a week. There is no waiting for an opening bell as in the case of trading stocks. It is a 24- hour, continuous electronic (ONLINE) currency exchange that never closes. This is very desirable for you if you want to trade on a part-time basis, because you can choose when you want to trade: morning, noon or night.
3): There is never a Bear Market in FOREX.
You can have access to a seamless, mutually-inclusive (two- way) exchange of currencies. Meaning, because currencies trade in "pairs" (for example, US dollar vs. yen or US dollar vs. Swiss franc), one side of every currency pair (for example, USD/JPY - JPY = YEN) is constantly moving in relation to the other. Thus, when you buy a particular currency, you are actually simultaneously selling the other currency in that particular pair. As the market moves, one of the currencies will increase in value versus the other. Of course, it is up to you to choose the correct currency to be long or short. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means you have equal potential to profit in both a rising or falling market.
4): High Leverage - up to 200:1 Leverage.
You are permitted to trade foreign currencies on a highly leveraged basis - up to 200 times your investment with some brokers. This is primarily attributed to the higher levels of liquidity within the currency markets. Standard 100,000- unit currency lots can be traded with as little as 1% margin, or $1,000. Mini FX accounts are permitted to trade with just 0.5% margin -- in other words, just $50 allows you to control a 10,000-unit currency position. Futures traders, who are accustomed to margin requirements generally equal to 5%-8% of the contract value, will immediately recognize that the FOREX market provides much greater leverage, and for stock traders, who must post at least 50% margin, theres no comparison. If you are looking for an efficient use of trading capital, this is it!
5): Price Movements Are Highly Predictable.
Although currency prices in the FX market may be volatile, they generally repeat themselves in relatively predictable cycles, creating trends. The strong trends that foreign currencies develop are a significant advantage for traders who use the correct "technical" methods.
Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. As a technically-trained trader, you can easily identify new trends and breakouts, which provide for multiple opportunities to enter and exit positions.
6:) Commission-free Trading and Low Transaction Cost
When you trade FOREX, through one of our recommended brokers (this info is in our private resources section), you'll do it totally commission-free! These brokers don't charge commissions to trade or to maintain an account, and that goes for all clients trading the FOREX through them, regardless of your account balance or trading volume. Even Mini FX traders can buy and sell currencies online, commission-free.
What about trading fees? There are none of the usual fees to which futures and equity traders are accustomed -- no exchange or clearing fees, no N_F_A or S_E_C fees. Because currencies trade over-the-counter (OTC), via a global electronic network -- in FOREX, what you see is what you get, allowing you to make quick decisions on your trades without having to worry or account for fees that may affect your profit/loss or slippage.
In the equities markets, you must pay both a commission and exchange fees. The over-the-counter structure of the FX market eliminates exchange and clearing fees, which in turn lowers transaction costs.
So, if FOREX broker don't charge commissions, how do they make money? Like all traded financial products, over-the- counter currency trading involves a bid/ask spread, which represents the prices at which your counterparty is willing to trade. Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night. Stock traders can be more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after-hours trading.
7): Instantaneous Order Execution and Market Transparency.
Market transparency is highly desired in any trading environment. The greater the market transparency, the more efficient the market becomes. Unlike other markets where transparency is compromised (like in the Enron scandal), FOREX markets are highly transparent (i.e., analyzing countries, and having access to real-time research / news, is easier than companies).
Because of this transparency, as an FX trader, you will be able to exercise risk management strategies in accordance to the fundamental and technical indicators we teach at RapidForex.com
The FX market offers the highest level of market transparency out of all the financial markets. Because of this, order execution and fill confirmation usually occur in just 1-2 seconds. Markets that do not offer executable prices and force traders to absorb slippage obviously compromise the trader's profit potential considerably.
In the forex world, order execution is all-electronic and because you'll be trading via an Internet-based platform, instantaneous execution is routine. There are no exchanges, no traditional open-outcry pits, no floor brokers, and consequently, no delays.
Advantages of Trading FOREX Over Stocks and Commodities
There are many advantages to Trading FOREX as your main income generator. Lets start by something that may be worrying you already.
Do I need a Diploma or some kind of Certification to trade FOREX? The answer is this:
When attempting to make more profit than losses on the fluctuation of exchange rates between major currencies (i.e., Trading the FOREX), nobody is going to ask you for a diploma, a formal license or verify the amount of hours you've spent studying the Foreign exchange market and banking industry. All you need is the proper training.
But this is not the only advantage you get when trading FOREX, compared to other ways of investment and speculation; i.e. Stocks and Commodities. You have a whole bunch of advantages over these other options that will be enumerated in the following paragraphs.
The Main Benefits of Trading the FX Spot Market:
1): FOREX is the largest financial market in the world.
With a daily trading volume of over $1.5 trillion, the spot FOREX market can absorb trading sizes that dwarf the capacity of any other market. In fact, when compared with the $50 billion daily market for equities or the $30 billion futures market, it becomes quickly apparent this gives you, and millions of other FOREX traders, almost infinite trading liquidity and flexibility.
2): FOREX is a TRUE 24-hour market.
The FOREX Market never sleeps. Trading positions can be entered and exited at any moment - around the globe, around the clock, six days a week. There is no waiting for an opening bell as in the case of trading stocks. It is a 24- hour, continuous electronic (ONLINE) currency exchange that never closes. This is very desirable for you if you want to trade on a part-time basis, because you can choose when you want to trade: morning, noon or night.
3): There is never a Bear Market in FOREX.
You can have access to a seamless, mutually-inclusive (two- way) exchange of currencies. Meaning, because currencies trade in "pairs" (for example, US dollar vs. yen or US dollar vs. Swiss franc), one side of every currency pair (for example, USD/JPY - JPY = YEN) is constantly moving in relation to the other. Thus, when you buy a particular currency, you are actually simultaneously selling the other currency in that particular pair. As the market moves, one of the currencies will increase in value versus the other. Of course, it is up to you to choose the correct currency to be long or short. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means you have equal potential to profit in both a rising or falling market.
4): High Leverage - up to 200:1 Leverage.
You are permitted to trade foreign currencies on a highly leveraged basis - up to 200 times your investment with some brokers. This is primarily attributed to the higher levels of liquidity within the currency markets. Standard 100,000- unit currency lots can be traded with as little as 1% margin, or $1,000. Mini FX accounts are permitted to trade with just 0.5% margin -- in other words, just $50 allows you to control a 10,000-unit currency position. Futures traders, who are accustomed to margin requirements generally equal to 5%-8% of the contract value, will immediately recognize that the FOREX market provides much greater leverage, and for stock traders, who must post at least 50% margin, theres no comparison. If you are looking for an efficient use of trading capital, this is it!
5): Price Movements Are Highly Predictable.
Although currency prices in the FX market may be volatile, they generally repeat themselves in relatively predictable cycles, creating trends. The strong trends that foreign currencies develop are a significant advantage for traders who use the correct "technical" methods.
Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. As a technically-trained trader, you can easily identify new trends and breakouts, which provide for multiple opportunities to enter and exit positions.
6:) Commission-free Trading and Low Transaction Cost
When you trade FOREX, through one of our recommended brokers (this info is in our private resources section), you'll do it totally commission-free! These brokers don't charge commissions to trade or to maintain an account, and that goes for all clients trading the FOREX through them, regardless of your account balance or trading volume. Even Mini FX traders can buy and sell currencies online, commission-free.
What about trading fees? There are none of the usual fees to which futures and equity traders are accustomed -- no exchange or clearing fees, no N_F_A or S_E_C fees. Because currencies trade over-the-counter (OTC), via a global electronic network -- in FOREX, what you see is what you get, allowing you to make quick decisions on your trades without having to worry or account for fees that may affect your profit/loss or slippage.
In the equities markets, you must pay both a commission and exchange fees. The over-the-counter structure of the FX market eliminates exchange and clearing fees, which in turn lowers transaction costs.
So, if FOREX broker don't charge commissions, how do they make money? Like all traded financial products, over-the- counter currency trading involves a bid/ask spread, which represents the prices at which your counterparty is willing to trade. Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night. Stock traders can be more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after-hours trading.
7): Instantaneous Order Execution and Market Transparency.
Market transparency is highly desired in any trading environment. The greater the market transparency, the more efficient the market becomes. Unlike other markets where transparency is compromised (like in the Enron scandal), FOREX markets are highly transparent (i.e., analyzing countries, and having access to real-time research / news, is easier than companies).
Because of this transparency, as an FX trader, you will be able to exercise risk management strategies in accordance to the fundamental and technical indicators we teach at RapidForex.com
The FX market offers the highest level of market transparency out of all the financial markets. Because of this, order execution and fill confirmation usually occur in just 1-2 seconds. Markets that do not offer executable prices and force traders to absorb slippage obviously compromise the trader's profit potential considerably.
In the forex world, order execution is all-electronic and because you'll be trading via an Internet-based platform, instantaneous execution is routine. There are no exchanges, no traditional open-outcry pits, no floor brokers, and consequently, no delays.
Trading Logic ? The Key to Making Huge Profits Fast
If you trade any financial market, you will be aware that the majority of investors simply dont make money. Its not because they lack trading ability investors dont make money because they dont understand trading logic.
A focus on trading logic is essential for any trader who seeks to make money. Forget, opinions and emotions, and focus on the reality of the trading environment - you can then apply trading logic, to make huge profits consistently.
Here are some observations of trading logic, and how you can use them to your advantage.
The Market Price
Firstly, before we look at anything else, we need to look at what moves financial markets:
Supply and demand (fundamentals) + Investor perception = Market price
Therefore, prices are determined not just by supply and demand - but also by people. So, what does this trading logic tell us? - Predictive theories dont work, but odds theories do work.
There are lots of theories that claim markets move to a scientific theory - this isnt true - if they did, then everyone would know the price in advance - and there would be no market!
Correct trading logic tells us that while we dont know exactly where prices are going to go, we can calculate the odds of a move - by studying price history.
While human nature is unpredictable driven by the emotions of greed and fear, there are patterns that constantly repeat and this leads us to technical analysis.
Human Psychology Repeats Itself
Trading logic tells us that human psychology repeats itself - because we can see it in charts.
Although theres never a perfect scenario, we can calculate the odds of success of a trade - based upon what happened in the past. Therefore, by using a soundly based trading method, we can make money - over time.
Day Trading V Long Term Trend Following
From the above, trading logic tells us that day trading is futile. Why? - Because human nature is very unpredictable over short-term time spans. Human nature only becomes predictable over long-term time spans. Look at any currency, (or any financial instrument over time) and youll see long-term trends - and theyre the ones you need to focus on.
Emotions are a Traders Worst Enemy
Traders hate to trade alone - they constantly seek opinions, and success, from someone else. As the bulk of traders get it wrong, they step into the trading majority and find themselves caught up in a losing mentality.
The only way to trade successfully is in isolation - using trading logic to look at the facts, not what others think.
Trade Entry and Exits
Trading logic tells us that market timing is futile. Why? Because you cannot predict - and thats what market timing tells us to do. Therefore, you should follow market action - rather than try and predict it. This means leaving top and bottom picking, to the losing majority.
Money Management
As were playing an odds game, money management is essential we must be constantly trying to preserve our capital.
If you lose 50% of your capital, you have to make 100% on your next trade, just to get back to even - so try not to lose money in the first place! This is of course difficult - and involves doing two things:
1. Only trading when the odds are heavily in your favour - and in many markets, this means trading only a few times a year.
2. Taking enough risk - so you arent stopped out of your trade, by normal market volatility.
Risk and Reward
Trading logic tells us that risk is a combination of the following factors:
Market volatility + Trading methodology + Money management = Risk of trade.
This complex interaction is much more than setting a stop, or allocating 2% of capital to a trade - which is the way most traders view it. It involves seeing risk in a different light.
Some trades you make may look risky - but if you have balanced the equation correctly, the odds will be on your side.
Trading Logic
There are many other examples of trading logic, that we can look at - but the above covers the most important areas.
To make money, you need to see the markets, and their behaviour, as they are - not how you want to see them.
Dont make the same mistake as the majority of traders. Instead, think logically, and without emotion - and it will lead you to huge long-term gains.
Trading Trends For Profits
In the financial markets, a trend is generally understood to be the current market direction. Markets can be trending higher, trending lower, or trending sideways.
But defining a trend so that it can be profitably traded is something else entirely.
Many would say the S&P 500 Index is currently in a bullish trend. But at the same time, the Nasdaq Composite and Nasdaq 100 Index have been trading sideways for months. So trends can obviously exist for one sector while another is going nowhere.
Just saying that a trend consists of "rising" prices, or "declining" prices is not enough. Every day is different. A trend must be clearly defined in order to be profitably traded.
And what about time frame? Are we talking about a trend on a 5 minute bar chart where it could last an hour? Or is it of longer duration; days, weeks, years?
It is easy to determine trends on a chart of prices that have already occurred. Developing a trading strategy that will keep you on the right side of future trends is needed to profit from trend trading (market timing).
Successful market timers know and use several facts about trends that give them an edge in trading them:
1. While financial markets may spend time in consolidation (sideways trends), they are more often moving up or down for sustained periods of time.
2. A timing strategy that defines trends can be used to take advantage of continued momentum in the market place.
3. Trends tend to go higher, or lower, than most investors expect. So correctly identifying and trading a trend can be very profitable.
4. Profitable trends occur only once or twice a year. The rest of the time the markets trend sideways. The Nasdaq, for example, would have to be considered as being in a sideways trend over the past several months.
Because tradable trends only occur once or twice a year, market timers must be prepared to sometimes wait months before catching that one highly profitable trend.
a. To be consistently successful over time, market timers must have clear rules telling them when to enter, and when to exit.
b. When in a sideways trend, market timers often have multiple trades that result in small losses, or small gains. These small losses and gains "must" be accepted because timers "must" trade every identified trend change. There is no way to know "ahead of time" which trend will be the highly profitable one.
c. Market timers usually make the majority of their profits in only one or two trades a year. If you don't take every trade, you will likely miss the one that makes most of your profits.
d. When the markets are in a bullish or bearish trend, trading position changes may not occur for months at a time as the trend progresses. Exiting early to lock in profits can cost you dearly. The trend must be allowed to play out without making unnecessary trades because of volatile short term conditions.
e. A profitable trading strategy will "not" allow a market timer to miss that trade!
Correctly identifying and trading financial market trends with mutual funds, ETF's and even carefully selected stocks, is doable, profitable, and with a well tested trading strategy can achieve results far above "buy-and-hold" investing.
Market timing, when following a well thought out trading strategy, is actually "less" risky than a buy and hold approach.
The active investing style used in FibTimer's market timing strategies (identifying and trading trends) prevents huge losses in the inevitable bear markets (or any large decline that is of substantial duration).
If bearish strategies are used in the timing strategy, declining markets actually add to profits.
Market timers, when following a well defined and tested timing strategy that identifies market trends, will consistently beat the market over any fair time frame.
Forex Scams
Forex scams can take many forms. Some scams can be compelling or seem to be very legitimate. They take advantage of traders seeking the magic answer to winning in the forex markets. Unfortunately, there are no easy answers. Here is a quick list of some popular general forex scams.
1. Signal Sellers
It seems like a new company springs up every day that has the signal service to beat all signal services. They profess to be able to sell you information on which trades you should make. These signal sellers usually charge a daily/weekly/monthly fee for their service and usually do not offer anything that will help improve your trading. There is no such thing as having a magic key to the market and if there was, why would you sell it?
2. Phony Investment Funds
In the past few years, funds called HYIP(High Yield Investment Program) have popped up all over the place. Most of these(if not all) are scams. They promise you a high level of return for temporary use of your money in their forex fund. It is a type of Ponzi scheme where the investors of yesterday get paid back by the investors of tomorrow. Once the fund runs out of prospects, they usually close down and take whatever money they had with them.
3. Miracle Software
There is no software that will figure out the forex market for you. However, a quick google search will turn up plenty of software sellers that say otherwise. Some companies out there are selling their special “packages” for upwards of $5,000 and many times it turns out to be something that you can find on the internet for free. It is generally not advisable to buy any type of forex software that will tell you which trades to make.
Advantages of the Forex Market
What are the advantages of the Forex Market over other types of investments?
When thinking about various investments, there is one investment vehicle that comes to mind. The Forex or Foreign Currency Market has many advantages over other types of investments. The Forex market is open 24 hrs a day, unlike the regular stock markets. Most investments require a substantial amount of capital before you can take advantage of an investment opportunity. To trade Forex, you only need a small amount of capital. Anyone can enter the market with as little as $300 USD to trade a "mini account", which allows you to trade lots of 10,000 units. One lot of 10,000 units of currency is equal to 1 contract. Each "pip" or move up or down in the currency pair is worth a $1 gain or loss, depending on which side of the market you are on. A standard account gives you control over 100,000 units of currency and a pip is worth $10.
The Forex market is also very liquid. When trading Forex you have full control of your capital.
Many other types of investments require holding your money up for long periods of time. This is a disadvantage because if you need to use the capital it can be difficult to access to it without taking a huge loss. Also, with a small amount of money, you can control
Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self discipline, Forex trading can be a relatively low risk investment.
The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the ability to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it wise to practice with "paper money", or "fake money." Most brokers have demo accounts where you can download their trading station and practice real time with fake money. While this is no guarantee of your performance with real money, practicing can give you a huge advantage to become better prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to purchase.