Solid Trading Tips: Creating a trading strategy

One of the most common mistakes new Forex traders do, is that they have no trading strategy. Because of the many appealing characteristics (24 hours, trade both short and long, leverage etc) most of the new traders entering the market are eager to prove themselves in an often egoistic approach. Egoistic in that they believe that they can become very profitable and make a fortune in the short term, but soon enough they end up with a bad psychology which at the end accelerates their loosing pattern. In fact, the most successful Forex traders are people recognized for their humility and discipline. These qualities are acquired trough experience and accepting some simple realities of the Forex market.

The first step towards becoming profitable in the Forex market is to devise a trading strategy/plan. Creating a trading strategy is of paramount importance and is actually very easy.

To create a successful trading strategy, traders should address the following considerations:

1. Reasoning of the trade: Why buy or sell? Which pair?
2. Timing of the trade: Why now? Before economic news releases or after? Day or night?
3. Trading objective: What is the take profit target? What is the stop loss?
4. Money management.
5. Documentation and analysis of the results.

Before entering a trade there should be a good reason. Many times traders are entering a position because of boredom or just to feel the excitement of being long or short. This is a recipe for disaster! You should always buy or sell any pair on a reason that makes sense to you. Whether this reason is fundamental or technical or both, always make sure there is a reason.

What currency pairs will you trade?
This sounds simple, but it is easy to get confused if you don’t define this. From our experience we strongly believe that is best to concentrate on some (not all) major pairs (such as EURUSD, GBPUSD and USDJPY) and don’t waste time with illiquid, choppy pairs.

You also have to determine when you will trade and how often you will trade. Are you going to be a day trader or hold positions for a longer period of time? Your schedule and responsibilities may have some impact on that.

Should you trade before economic releases or after? Should you trade heavily on nights, during UK open and close etc?
It is important to define these basic ideas to begin to form some consistency and discipline.

The second step is to define your trading objectives.
What is your end goal? What is your take profit target and your stop loss limit?
Try to place your take profit and stop loss before entering the trade as you can always change that, if something important happens in the markets in the meantime. Most traders tend to take their profits early while letting their losses run. This is because in the inexperienced traders mindset is very difficult to accept that he/she is wrong.
Placing your stop loss at the time you open a trade will help you create discipline and learn that sometimes you will be wrong. Furthermore, most new traders have completely unrealistic goals. Making big returns in the first year of trading is possible but highly improbable. These unrealistic expectations wipe out a lot of traders before they even had the chance to learn the market. Breaking even in the first year is an admirable goal; many traders do not do that. If a trader makes 20-30% on their initial investment in their first year, that is outstanding.

Money management is probably the most important aspect of trading.
First you have to accept that in trading nobody can have a 100% winning ratio and everybody (even the most experienced traders) are sometimes wrong. Accepting that sometimes you might be wrong is again of paramount importance. The key here is accepting you are wrong before your mistake becomes too big. To do that you need to determine how much equity you have to fund you account. Then you must determine how much risk you are willing to take on each trade. Most experienced traders risk 1-4 % of their account balance on each trade. This may look too low to the new Forex traders, but will definitely help you avoid big losses, create the necessary discipline and keep you in the market in order to get the necessary experience. Also very important is to have a positive percentage of winning trades compared to losing trades and a positive average profit compared to the average loss ratio. If your average loss is two times your average profit that means you need to make 10 profitable trades to cover 5 losing trades. Keep this in mind.

Along with money management, it is vital to keep track of your past trading and results in order to recognize past mistakes and avoid them in the future.
This is just a basic start to having a successful trading strategy in the long run but will definitely help new traders get the discipline required to be profitable in the very exciting Forex market.

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Learning to Trade Forex

There are several outstanding reasons why learning to trade forex is a worthwhile educational project. Forex, or foreign exchange trading is the granddaddy of them all in the trading field. Daily volumes are into several trillions of dollars. The huge size of the forex market reflects the basic use of money by everyone in the modern world. This massive activity every business day means that the skilled forex trader has a virtually unlimited pool of money to tap into almost at will.
After learning to trade forex successful forex traders can earn hundreds, thousands, or far more dollars a day right from their home computer. One of the most successful forex traders know to man, Mr. George Soros, once made in excess of a billion dollars in just a few days time by correctly forecasting that the Bank of England would not be able to defend a grossly overvalued British Pound.

Once Soros had completed his analysis he didn't just sit on it, he took massive action and placed a large short position against the Pound. As the Pound went from around 2.000 to 1.5000 Soros made his huge fortune.

So to come back to the good reasons as to why learning to trade forex may be a terrific idea for those new wannabe traders who have risk capital to trade with:

1. The forex market is where the big money is. There are no predefined limits as to what a skilled trader can make from trading forex.

2. The forex market is international and in major currencies extremely active. You can trade forex 24 hours a day five days a week.

3. The forex market is extremely liquid and deep. This means that there are always dealing quotes at which you can buy or sell active currencies at narrow spreads.

4. Forex trading usually comes at you in a hurry. Your trade will most often move into a profit or hit a stop loss point within a few hours, sometimes within minutes or even seconds.

5. Currencies usually trend in one direction for very long time periods. It is not unusual for a currency to trend in one direction for three to five years at a time. When you trade with the major trend you gain a trading edge.

If there is one point you must keep in mind about learning to trade forex it is this one. Your chances of having a successful outcome to your trade are increased tremendously when you trade with the major trend. When you enter your trade on a correction within the trend your odds of completing a successful trade become excellent.

For example, let's say that you have identified the Euro as being in a major uptrend against the US Dollar. This is easy to do by looking at a long term chart of the Euro against the US Dollar. Instead of immediately rushing into the forex market and buying the Euro you wait until a correction takes place, as they often do, and you buy the Euro on a pullback to its long term trend line. This takes some patience and discipline to do but the payoff can be huge.

As the major trend kicks in your Euro position is immediately in profit. Then you have the pleasant decision to make as to when to take your profit. Learning to trade forex can be broken down into a series of decisions like this.

The key to learning to trade forex at a profit is to take your time and make a careful analysis as to the direction of the trend. Then you must wait for a good entry point. Patience and discipline are the hallmarks of the most successful forex traders.

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Forex Trading And how it works

If you like to play the stock market, maybe you should also consider the international foreign exchange for currency. Forex trading as it is called, is the largest traded market on earth thanks to its multi-regional trading area. With daily trade amounts of more than 3 trillion, there is certainly money to be made with it.

With traders from around the world getting involved there are those who are unscrupulous enough to try a forex trading system under false pretenses. Because the market is run 24 hours daily and is not located in one fixed location but is operated in many places world wide, and because it is not based on one set dollar amount but rather on many price ranges dependent on the trader's location, it would be tempting to try and make a quick buck by using the system. However, there are a couple of international agencies who do try to track and maintain a certain level of honesty within the market.

There is little regulation though between countries because the trading is done across boarders and by many different levels of people. There is an existing practice in place, however, that allows for international agencies to track forex currency trading amounts in order to squash potential exploiters. With trades not being based on one dollar amount, but by a spread of amounts based on where the trade originates from, there is a possibility for someone to exploit the price.

With governments, central banks, and currency speculators involved in the forex trade, a system has been worked out to keep it a bit more fair. One big difference between the regular stock market and the forex market is that not all traders have access to the same prices due to the volume that some traders have access to.

Because the markets never sleep, they open in Asia, then Europe and move on to the USA and back again, many traders have become interested in forex trading software and forex automatic trade systems. Keeping up with the market is getting to be a never ending cycle and having an automated system in place can take some of the stess out of the game.

With the market being continuous thanks to operating world wide, forex online system trading has gained in popularity over the last few years. With easy access for even lower level players, forex platform trading can be done by almost anyone.

Forex online system trading has also become a great advantage to traders because it allows for real time tracking from home, office and even mobil devices such as your phone or PDA. There are several forex online platform trading systems and many offer a practice account to get used to their way of doing forex platform trading.

With these platforms and the ability to trade and track on line, you can take forex strategy trading to the next level and make some money for yourself.

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