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117-Elliot Wave Theory- Corrections always take place in three waves.
118-Elliot Wave Theory- Waves can be expanded into longer waves and subdivided into shorter waves.
119-Elliot Wave Theory- Sometimes one of the impulse waves extends. The other two should then be equal in time and magnitude.
120-Elliot Wave Theory- The Finobacci sequence is the mathematical basis of the Elliot Wave Theory.
121-Elliot Wave Theory- The number of waves follows the Finobacci sequence.
122-Elliot Wave Theory- Finobacci ratios and retracements are used to determine price objectives. The most common retracements are 62%, 50% and 38%.
123 -Elliot Wave Theory- Bear markets should not fall below the bottom of the previous fourth wave.
124 -Elliot Wave Theory- Wave 4 should not overlap wave 1.
125 .Support and resistance are the most effective chart tools to use for entry and exit points. For purposes of placing stop loss, support and resistance levels are most valuable.
126. One of the commodities most effected by the dollar is the gold market. The prices of gold and the U.S. dollar usually trend in opposite directions.
127. The Yen is sensitive to changes in the price or structure of the raw material markets.
128. The commodity-producing countries (Canada, Australia, N. Zealand ) are more dependent on Japan than the other way around.
129. The Yen is sensitive to the fortunes of the Nikkei index, the Japanese stock market and the real estate market.
130. The majority of the pound transactions take place in London with a volume decreasing significantly in the U.S. market, and slowing down to a trickle in Asia. Therefore, in the New York market, many banks have to stop quoting the pound at noon.
131. Swiss Franc has a very close economic relationship with Germany, and thus to the euro zone.
132. The major markets are London, with 32 percent of the market,New York with 18 percent and Tokyo with 8 percent. Singapore follows with 7 percent, Germany has 5 percent and Switzerland, France and Hong Kong have 4 percent each.
133. Don't use the markets to feed your need for excitement.
Monday, October 22, 2007
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100. The exhaustion gap provides the direction of the market.
101. Near the beginning of important moves, oscillator analysis isn?t that helpful and can be misleading. Toward the end of market moves ,however ,oscillators become extremely valuable.
102. When the oscillator reaches an extreme value in either the upper or lower end of the band, this suggest that the current price move have gone too far too fast and is due for a correction of some type.
103. The oscillator is most useful when its value reaches an extreme reading near the upper or lower end of its boundaries. The market is said to be overbought when it is near the upper extreme and oversold when it is near the lower extreme. This warns that the price trend is overextended and vulnerable.
104. A divergence between the oscillator and the price action when the oscillator is in an extreme position is usually an important warning.
105.-Oscillator-The crossing of the zero line can give important trading signals in the direction of the price trend.
106.Because of the way it is constructed, the momentum line is always a step ahead of the price movement. It leads the advance or decline in prices , then levels off while the current price trend is still in effect. It then begins to move in the opposite direction as prices begin to level off.
107. RSI is plotted on a vertical scale of 0 to 100. Movements above 70 are considered overbought, while an oversold condition would be a move under 30 .Because of shifting that takes place in bull and bear markets, the 80 level usually becomes the overbought level in bull markets and the 20 level the oversold level in bear markets.
108. The first move of RSI into the overbought or oversold region is usually just a warning. The signal to pay close attention to is the second move by the oscillator into the danger zone. If the second move fails to confirm the price move into new highs or new lows, a possible divergence exists. At that point ,some defensive action can be taken to protect existing positions. If the oscillator moves in the opposite direction, breaking a previous high or low, then a divergence or failure swing is confirmed.
109. Stochastics simply measures , on a percentage basis of 0 to 100, where the closing price is in relation to the total price range for a selected time period. A very high reading (over 80) would put the closing price near the top of the range ,while a low reading (under 20) near the bottom of the range.
110. One way to combine daily and weekly stochastics is to use weekly signals to determine market direction and daily signals for timing(it depends from the type of the trader). It?s also a good idea to combine stochastics with RSI.
111. Most oscillator buy signals work best in uptrends and oscillator sell signals are most profitables in downtrends. The place to start your market analysis is always by determining the general trend of the market. Oscillators can then be used to help time market entry.
112. Give less attention to the oscillators in the early stages of an important move, but pay close attention to its signals as the move reaches maturity.
113.The best way to combine technical indicators is use weekly signals to determine market direction and the daily signals to fine-tune entry and exit points. A daily signal is followed only when it agrees with the weekly signal. (daily-weekly, 4 hour-daily,4 hour-1 hour).
114. The failure of prices to react to bullish news in an overbought area is a clear warning that a turn may be near. The failure of prices in an oversold area to react to bearish news can be taken as a warning that all the bad news has been fully discounted in the current low price. Any bullish news will push prices higher.
115. -Elliot Wave Theory- A complete bull market cycle is made up of eight waves, five up waves followed by three down waves.
116 -Elliot Wave Theory- A trend divides into five waves in the direction of the longer trend.
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71. Patience is important not only in waiting for the right trades,but also in staying with trades that are working.
72. You are superstitious; don't trade if something bothers you.
73. Technical analysis is the study of market action through the use of charts,for the purpose of forecasting future price trends.
74. The charts reflect the bullish or bearish psychology of the marketplace.
75. The whole purpose of charting the price action of a market is to identify trends in early stages of their development for the purpose of trading in the direction of those trends
76. The fundamentalist studies the cause of market movement, while the technician studies the effect.
77. Rising commodity prices generally hint at a stronger economy and rising inflationary pressure. Falling commodity prices usually warn that the economy is slowing along with inflation.
78. The longer the period of time that priced trade in a support or resistance area,the more significant that area becomes.
79. There are three decisions confronting the trader ?whether- to go long, go short or do nothing. When a market is rising ,the best strategy is preferable. When the market is falling, the second approach would be correct. However ,when the market is moving sideways ,the third choise ?to stay out of the market- is usually the wisest.
80. Channel lines have measuring implications. Once a breakout occurs from an existing price channel ,prices usually travel a distance equal to the width of the channel .Therefore, the trader has to simply measure the width of the channel and then project that amount from the point at which either trendline is broken.
81. The larger the Pattern ,the Great the potential. When we use the term ?larger? ,we are referring to the the height and the width of the price pattern. The height measures the volatility of the pattern. The width is the amount of time required to build and complete the pattern. The greater the size of the pattern-that is ,the wider the price swings within the pattern (the volatility ) and the longer it takes to build ?the more important the pattern becomes and the greater the potential for the ensuing price move.
82. The breaking of important trendlines . The first sign of an impending trend reversal is often the breaking of an important trendline. Remember however ,that the violation of a major trendline does not necessarily signal a trend reversal.The breaking of a major up trendline might signal the beginning of a sideways price pattern ,which later would be intedified as either the reversal or consolidation type.Sometimes the breaking of the major trendline coincides with the completion of the price pattern.
83. The minimum requirement for a triangle is four reversal points. Remember that it always takes two points to draw a trendline.
84. The moving average is a follower , not a leader. It never anticipates;it only reacts. The moving average follows a market and tells us that a trend has begun, but only after the fact.
85. Shorter term averages are more sensitive to the price action ,whereas longer range averages are less sensitive.In certain types of markets ,it is more advantageous to use a shorter average and ,at other times , a longer and less sensitive average proves more useful.
86. When the closing price moves above the moving average , a buy signal is generated. A sell signal is given when prices move below the moving average.
87. A buying signal on a two-moving average combination occurs when the shorter term of two consecutive averages intersects the longer one upward. A selling signal occurs when the reverse happens, and the longer of two consecutive averages intersects the shorter one downward.
89. Shorter average generates more false signals ,it has the advantage of giving trend signals earlier in the move .The trick is to find the average that is sensitive enough to generate early signals, but insensitive enough to avoid most of the random ?noise?.
90. Cutting losses is painful for every trader.The ability to cut one?s losses in time is the sign of a seasoned trader.
91.A channel breakout suggests a target for the currency price equal to the width of the channel.
92. Long term charts provide important information regarding long-terms or cycles. The trader can get a correct perspective regarding the real direction of the market in the long run, the strength or direction of the current trend occurring within that trend, or the possibility of a breakout from the long-term trend.
93. Common Points All Of Reversal Patterms
A)The first signal of an impending trend reversal is often the breaking of an important trendline.
B)The larger the pattern,the greater the subsequent move
C)Topping patterns are usually shorter in duration and more volatile than bottoms.
D)Bottoms usually have smaller price ranges and take longer to build
94. The head-and-shoulders formation is confirmed only when the completion of the three rallies and their reversals is followed by a breach of the neckline. The failure of the price to break through the neckline on closing prices basis puts on hold or negates the validity of the formation.
95. The double-top formation is confirmed only when the full completion of the two rallies and their respective reversals is followed by a breach of the neckline (the closing price is outside the neckline ).The failure of the price to break through the neckline puts on hold or negates the validity of the formation.
96. The flag formation is a reliable chart pattern that provides two vital signals: direction and price objective. This formation consists of a brief consolidation period within a solid and steep upward trend or downward trend. The consolidation itself tends to be sloped in the opposite direction from the slope of the original trend, or simply flat.
97. A Breakaway gap provides the direction of the market.
98. The runaway or measurement gap provides the direction of the market. This gap confirms the health and velocity of the trend.
99. The runaway or measurement gap is the only type of gap that provides a price objective. The price objective is the previous length of the trend, measured from the runaway gap, in the same direction as the original trend.
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45. Risk Control
A)Never risk more than 3-4 percent of your capital on any trade
B)Predetermine your exit point before you get into a trade
c)If you lose a certain predetermined amount of your starting capital, stop trading, analyze what went wrong, and wait until you feel confident before you begin trading
46. Don?t trade scared money. No one ever made any money trading when they had to do it to pay the mortgage at the end of the month. Having a requirement to make X dollars per month or you will be financially in trouble is the best way I know to completely mess up all trading discipline, rules, objectives, and leads quickly to disaster. Trading is about taking a reasonable risk in order to achieve a good reward. The markets and how and when they give up their profits is not under your control. Do not trade if you need the money to pay bills. Do not trade if your business and personal expenses are not covered by another income stream or cash reserve. This will only lead to additional unmanageable stress and be very detrimental to your trading performance.
47. Know why you are in the markets. To relieve boredom? To hit it big? When you can honestly answer this question, you may be on your way to successful forex trading
48. Never meet a margin call; don?t throw good money after bad.
49. Close out losing positions before the winning ones,
50. Except for very short term trading, make decisions away from the market, preferably when the markets are closed.
51. Work from the long term to the short term.
52. Use intraday charts to fine-tune entry and exit.
53. Master interday trading before trying intraday trading.
54. Don't trade the time frame. Trade the pattern. Reversal patterns, hesitation patterns and breakout patterns appear often. Learn to look for the pattern in any time frame.
55. Try to ignore conventional wisdom; don?t take anything said in the financial media too seriously.
56. Always do your homework and stay current on global events. You never know what's going to set off a particular currency on any given day.
57. Learn to be comfortable being in the minority. If you are right on the market, most people will disagree with you. (90% losers,10% winners).
58. Technical analysis is a skill that improves with experience and study. Always be a student and keep learning.
59. Beware of all tips and inside information. Wait for the market's action to tell you if the information you've obtained is accurate, then take a position with the developing trend.
60. Buy the rumor, sell the news.
61. K.I.S.S ? Keep It Simple Stupid, more complicated isn?t always better.
62. Timing is especially crucial in forex trading.
63. Timing is everything in forex trading. Determining the correct direction of the market only solves a portion of the trading problem. If the timing of the entry point is off by a day ,or sometimes even minutes ,it can mean the difference between a winner or a loser.
64. A ?buy and hold? strategy doesn?t apply in forex trading
65. When you open an account with a broker, don't just decide on the amount of money, decide on the length of time you should trade. This approach helps you conserve your equity, and helps avoid the Las Vegas approach of "Well, I'll trade till my stake runs out." Experience shows that many who have been at it over a long period of time end up making money.
66. Carry a notebook with you, and jot down interesting market information. Write down the market openings, price ranges, your fills, stop orders, and your own personal observations. Re-read your notes from time to time; use them to help analyze your performance.
67. Don't count profits in your first 20 trades. Keep track of the percentage of wins. Once you know you can pick direction, profits can be increased with multi-plot trading and variations in using your stops. In other words, now is the time to get serious about money management.
68."Rome was not built in a day," and no real movement of importance takes place in one day.
69. Do not overtrade.
70. Have two accounts. One real account and the other a demo account. Learning doesn't stop when trading real dollars begins. Keep the demo account and use it to test alternative trades, alternative stops, etc.
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24. Be more objective and less emotional.
25. Use money management principles.
26. Money management increases the odds that the trader will survive to reach the long run.
27. Diversify, but don?t overdo it.
28. Employ at least a 3 to 1 reward-to-risk ratio.
29. Calculate the risk/reward ratio before putting a trade on, then guard against holding it too long.
30. Don?t trade impulsively ; have a plan
31. Have specific goals and objectives.
32. Five steps to build a trading system: a) Start with a concept b)Turn it into a set of objective rules. c) Visually check it out on the charts d) Formally test it with a demo e) Evaluate the results.
33. Plan your work and work your plan.
34. Trade with a plan - not with hope, greed, or fear. Plan where you will get in the market, how much you will risk on the trade, and where you will take your profits.
35. Follow your plan. Once a position is established and stops are selected, do not get out unless the stop is reached or the fundamental reason for taking the position changes.
36. Any successful trading system must take into account three important factors: price forecasting , timing , and money management. Price forecasting indicates which way a market is expected to trend. Timing determines specific entry and exit points. Money management determines how much to commit to the trade.
37. Don't cherry-pick your system's set-ups. Trade every signal.
38.Trading systems that work in an up market may not work in a down market.
39. Establish your trading plans before the market opening to eliminate emotional reactions. Decide on entry points, exit points, and objectives. Subject your decisions to only minor changes during the session. Profits are for those who act, not react.Don't change during the session unless you have a very good reason.
40. Double-check everything.
41. Always think in terms of probabilities. Trading is all about thinking in probabilities NOT certainties. You can make all the ?right? decisions and the trade still goes against you. This does not make it a ?wrong? trade, just one of the many trades you will take which, through probability, are on the ?loosing? side of your trading plan. Don?t expect not to have negative trades - they are a necessary part of the plan and cannot be avoided.
42. The place to start your market analysis is always by determining the general trend of the market.
43. Trade only with a strategy that you've proven to yourself.
44. When pyramiding (adding positions), follow these guidelines. a. Each successive layer should be smaller than before.
b. Add only to winning positions.
c. Never add to a losing position. One of the few trade management rules that we can state we never break is ?Never add to a losing trade?. Trades are split into winners and losers, and if a trade is a loser, the chances of it turning right around and becoming a winner are too small to risk more money on. If indeed it is a winner disguised as a loser, why not wait until it shows it?s true colors (and becomes a
d. winner)before you add to it. If you do this you will notice that nearly always the trade ends up hitting your stop loss and does not look back. Sometimes the trade turns around before it hits your stop and becomes a winner and you can count yourself very fortunate. Sometimes the trade hits your stop loss and then turns around and becomes a winner and you can count yourself unlucky. Whatever the result, it is never worth adding to a loser, hoping that it will become a winner. The odds of success are just too low to risk more capital in addition to the initial risk.
e. Adjust protective stops to the breakeven point.
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1. Learn the basics of forex trading. It's amazing how many people simply don't know what they're doing. In order to compete at the highest level in the trading business and be one of the few truly successful participants you must be well-educated about what you are doing. This does not mean having a degree from a well-respected university ? the market doesn?t care where you were educated.
2. Forex trading is a zero sum game. For every long there is also a short. If 80% of the traders are on the long side ,then the remaining 20% are on the short side. This means further that the shorts must be well capitalized and are considered to be strong hands. The 80%, who are holding much smaller positions per trader, are considered to be weaker hands who will be forced to liquidate those longs on any sudden turn in prices.
3. Nobody is bigger than the market.
4. The challenge is not to be the market, but to read the market. Riding the wave is much more rewarding than being hit by it.
5. Trade with the trends, rather than trying to pick tops and bottoms.
6. Trying to pick tops and bottoms is another common fx trading mistake. If you're going to trade tops and bottoms, at least wait until the price action actually confirms that a top or a bottom has been formed before you take a position in the market. Trying to pin-point tops and bottoms in the foreign exchange market is very risky, but exercising a little patience and waiting for a proven top or bottom to form can increase your odds of profiting and somewhat reduce your risk.
7. There are at least three types of markets: up trending, range bound, and down. Have different trading strategies for each.
8. Standing aside is a position.
9. In uptrends, buy the dips ;in downtrends, sell bounces.
10. In a Bull market, never sell a dull market, in Bear market, never buy a dull market.
11. Up market and down market patterns are ALWAYS present, merely one is more dominant. In an up market, for example, it is very easy to take sell signal after sell signal, only to be stopped out time and again. Select trades with the trend.
12. A buy signal that fails is a sell signal. A sell signal that fails is a buy signal.
13. Let profits run, cut losses short.
14. Let your profits run, but don't let greed get in the way. Once you've already made a nice profit on a trade, consider taking either some or all of the money off the table and move on to the next trade. It's natural to hope that one trade will end up as your "winning lottery ticket" and make you rich, but that is simply not realistic. Don't hold the position too long and end up giving all your well-deserved profits back to the market.
15. Use protective stops to limit losses.
16. Use appropriate stop-loss orders at all times to cut your losses and never, ever sit back and let your losses run. Almost every trader at some point makes the mistake of letting his or her losses run in hopes that the market will eventually turn around in his or her favor but, more often than not, it simply leads to an even greater loss. You win some, you lose some. Simply learn to cut your losses, take your occasional lumps and move on to the next trade. And if you made a mistake, learn from it and don't do it again. To avoid letting your losses run, get into the habit of determining an acceptable profit target as well as an acceptable risk tolerance level for each and every forex trade before entering the market. Then simply place a stop-loss order at the appropriate price - but not so tight (close to the market) that the stop could quickly take you out of the position before the market has a chance to move in your favor. Using a stop is always the smart move.
17. Avoid placing protective stops at obvious round numbers. Protective stops on long positions should be placed below round numbers (10, 20, 25, 50,75, 100) and on short positions ,above such numbers.
18. Placing stop loss is an art. The trader must combine technical factors on the price chart with money management considerations.
19. Analyze your losses. Learn from your losses. They're expensive lessons; you paid for them. Most traders don't learn from their mistakes because they don't like to think about them.
20. Stay out of trouble, your first loss is your smallest loss.
21. Survive! In forex trading, the ones who stay around long enough to be there when those "big moves" come along are often successful.
22. If you are a new trader, be a small trader (mini account) for at least a year, then analyze your good trades and your bad ones. You can really learn more from your bad ones.
23. Don't trade unless you're well financed...so that market action, not financial condition, dictates your entry and exit from the market. If you don't start with enough money, you may not be able to hang in there if the market temporarily turns against you.
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Friday, September 28, 2007
Historical Testing
by Scott Owens
Risk assessment is a critical element of money management. To gauge risk in advance of live trading, sophisticated investors employ a historical testing system. However, not all historical systems are capable of delivering complete risk assessments, and choosing the wrong tool could lead to poor live trading results.
Content
ANALYSIS- Use historical testing as a risk assessment tool.
- Learn how historical testing works and can be optimized.
- Understand the potential pitfalls of historical testing.
- Test your systems to get baseline metrics for risk performance.
- Optimize your systems to minimize drawdowns and consecutive losses.
- Trade your systems live with a few caveats about historical testing.
- Test-drive FX Engines for free online at www.fxengines.com to see the power of system building, system testing, and system automation.
About this Report
The Forex Report is a periodic publication that investigates advanced strategies for superior trading performance in the foreign exchange markets. These reports utilize advanced statistical and econometric modeling techniques to create new insight into the trading strategy of the average trader. This Core Concept Brief, Historical Testing, is intended for traders with all levels of forex trading experience and technical analysis understanding.To learn more about The Forex Report or to register for delivery of all future reports by email, including Case Studies & Data Briefs, please visit www.fxengines.com
Analysis
Historical testing is one of the most powerful tools in the trader’s arsenal. Using a large amount of historical data allows the trader to build systems that are fundamentally sound and expand upon them. Along with the benefits of historical tests come a few warnings about the dangers of using historical results irresponsibly.ASSESSING RISK
Each time a trader places an order, a number of factors combine to form a risk profile for that particular trade. Chief among these factors are position size, volatility, drawdown potential, and recent events. For a trader with a long history of live trading experience with a particular system, these dynamics are well known. But the trader who deploys a new system usually does so without the advantage of this live trading perspective. For these traders, historical and live tests are the best substitutes for actual trades.
HISTORICAL TESTS
Historical tests, in particular, provide a rich analytic framework for ascertaining a system’s ability to cope with the factors that influence risk. A historical test is a tic-by-tic re-enactment of a trading system’s performance over time. The best systems, like the one offered by FX Engines, use multiple years of tic data, employ that data in a real re-enactment with real trading constraints, and work in a way that the trader can replicate in a real-time, real-money account.
A good historical test provides a wealth of data which must be scrutinized by the trader to identify patterns that can be used advantageously in further optimized tests. The most telling metrics are net pips, maximum drawdown, consecutive losses, and success rate. These metrics give the trader enough information to make a rapid determination of the system’s worth. If the system is obviously bad, another direction can be chosen. If the system is good or looks to have potential, further scrutiny is needed.
The statistics of a back test are convenient, quick ways to gauge a system’s value, but there is no richer data to mine than the trades themselves. By looking at each trade the trader can get an idea of what happened, even with only a handful of data points. Using this data and the metrics from the test, a course for system optimization can be devised.
In some cases the methods for optimizing a system are obvious – adjust a stop, change an exit signal, change the entry schedule, etc. In other cases the methods are not so clear, and that’s when an automated optimizing system is of tremendous value. FX Engines, in particular, has such a tool, the Back Test Multiplier. This tool takes a number of different engines, breaks them down into their component parts, then recombines them into many more engines. This method creates systems that the trader might not have had the time or creativity to discover otherwise.
Once a system has been created and optimized through historical tests, a period of live testing is required. Only after verifying the conditions predicted by the historical test should a system be traded in a real account. Even then, real trades can deviate from the historical trades in many ways...source: fxstreet.com/education/forex-basics/historical-testing
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Automated Trading
by Scott Owens
The debate rages on: what’s the best way to capture profits in forex – hard work or automated trading? For someone who wants to trade their own systems, the answer is clear: both. Hard work is the foundation of all profitable automated trading systems.
Content
ANALYSIS- Why is automation of particular use in forex trading?
- What are the major components of automation?
- What does the ideal automated system look like?
- Evaluate the systems that allow you to automate.
- Select, test, and implement the platform of choice.
- Test-drive FX Engines for free online at www.fxengines.com to see the power of system building, system testing, and system automation.
About this Report
The Forex Report is a periodic publication that investigates advanced strategies for superior trading performance in the foreign exchange markets. These reports utilize advanced statistical and econometric modeling techniques to create new insight into the trading strategy of the average trader. This Core Concept Brief, Automated Trading, is intended for traders with all levels of forex trading experience and technical analysis understanding.To learn more about The Forex Report or to register for delivery of all future reports by email, including Case Studies & Data Briefs, please visit www.fxengines.com
Analysis
Do you want to work hard or work smart? That’s the real question. Building automated systems is hard work, but it’s hard work with a payoff. Manual trading may work for stocks and futures, but it won’t cut it in forex for most traders.Forex is unlike any market in the world. It’s open for trading 6 days a week, 24 hours per day. It’s dominated by multinational corporate treasuries, massive investment funds, and national banking and economic agencies. There are daily price swings that would make most fund manager’s yearly quota. It all adds up to a lot of risk for the average investor, but there are ways to minimize the risk and take advantage of the huge opportunity.
When the average trader first learns of forex trading, it’s all dollar signs and big dreams. The daily volume and profit potential lead many to believe that huge success is just a few pips away. While it’s true that forex presents a large and unique opportunity for traders, it’s also true that most traders are overwhelmed not long after their first few trades. Why?
There are too many chances to make money. Without the discipline to really hold to a system, most traders experience a wide array of events that eventually lead to account liquidation. The temptation to jump back in after a loss or gain, the misuse of leverage, the total absence of money management techniques, and many other ills befall the trader who sees one opportunity after another. Soon, physical fatigue sets in, then mental fatigue, and in the end trading becomes a vicious circle of what-ifs and could-have-been’s.
Emotion is the true culprit – whether it’s the ethereal highs we experience after gains or the remorseful lows we feel after losses. The trader needs to optimize moments of clear-headedness and objectivity to build systems free of the stress of trading. Once the system is built, the trader has to have the discipline to trade it EXACTLY as it was built. For a variety of reasons, that ability seems to be lacking among all but the top 1% of traders. The rest of us need automation.
COMPONENTS OF AUTOMATION
Every automated trading platform should have 4 major components:
- Signals – Signals are the events that trigger market entry and exit. The platform you choose should have sufficient breadth and customizability of signals to meet you system’s trading needs.
- Systems – Signals are combined in a script for trade entry, trade management, and trade exit, also known as a trading system or trading engine.
- Test Trading – Completely formed engines are tested historically using tic data, and then on a forward-looking basis using a live market price feed.
- Live Trading – Tested engines are elevated to live trading status, where a reputable forex dealer executes trades in a real money account.
THE IDEAL PLATFORM
Automation, in its best implementation:
- Provides exact execution of a trader’s system. The ideal automated trading platform allows a trader to work in a test environment with the exact same set of tools that will be used live. It allows the trader to build systems, test them, and implement them live in such a way that the trader knows that the live system will execute trades exactly as the test system did, and similar performance should result.
- Frees the trader from the majority of physical and emotional demands that are particularly forceful in the 24 hour, large player dominated world of forex trading.
- Makes money for the trader!
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Welcome to Forex
by Scott Owens
Go to a dinner party and mention your involvement with forex and you’re likely to get a few baffled looks. Most people don’t have a clue what forex is or how it works. Worst of all, neither do most beginning forex traders. Understanding what makes these markets tick is a good step towards a successful trading record.
Content
ANALYSIS- Get the answers to the most frequent questions about the foreign exchange marketplace.
- Learn more about the other forces that shape forex.
- Choose a few basic trading strategies to get started.
- Start trading, but don’t bet the farm.
- Test-drive FX Engines for free online at www.fxengines.com to see the power of system building, system testing, and system automation.
About this Report
The Forex Report is a periodic publication that investigates advanced strategies for superior trading performance in the foreign exchange markets. These reports utilize advanced statistical and econometric modeling techniques to create new insight into the trading strategy of the average trader. This Core Concept Brief, Welcome to Forex, is intended for traders with all levels of forex trading experience and technical analysis understanding.To learn more about The Forex Report or to register for delivery of all future reports by email, including Case Studies & Data Briefs, please visit www.fxengines.com
Analysis
Forex is full of many concepts that are foreign to traders who have previously specialized in stocks or commodities. Understanding these aspects of forex is a key to making you more comfortable in this new trading environment.Q: What is forex?
A: Forex is the foreign exchange marketplace where currencies from different countries are valued and exchanged. Most people only know about forex to the extent that they have changed money going from one country to another. When they did so, they unwittingly played a role in the world’s biggest marketplace. Forex trades almost $2 trillion per day, a total that exceeds all of the world’s biggest – and better known – markets.
Since currencies are valued differently, there is a market in place to set those values. Where a market exists speculation inevitably follows. In this case, the market is hyper-active. Banks sending deposits around the world, corporations hedging their exposure to currency risk in different countries, government banks forwarding national economic goals through monetary policy, and massive investment funds playing the role of speculator. Not long ago, that was the extent of the market. It was the domain of the professional trader or banker.
The word “market” usually invokes the idea of a central market place like the New York or London exchanges. This is not the case in forex. Instead, forex functions through what is known as the “interbank” market. Interbank is a fancy way of saying that banks trade with each other, absent a central market place. This is one major reason why volume data is not available for forex. It’s also the reason why retail investors and smaller traders were left on the sideline for so long.
In the 90’s, a series of events unfolded that made forex available to retail investors. Deregulation led many companies to form pools of liquidity where retail investors could take advantage of the huge speculative opportunity in forex. These dealers offered high leverage, low minimums, and a new way to trade – 24/7.
Q: What are pairs and pips?
A: Each currency exists in the marketplace not on its own, but as a “cross” between itself and another currency. This is practical, since when you travel to Europe you want to exchange your money for Euros. If you have US Dollars, you will be exchanging money at the rate set by EURUSD. EURUSD is a “pair”. It also happens to be the most popular pair. Most currencies are paired with EUR and USD, and to other currencies to a lesser extent. The “four majors” are EURUSD (Euro/Dollar), USDJPY (Dollar/Yen), GBPUSD (Pound/Dollar), and USDCHF (Dollar/Franc).
The bid-ask spread is usually lowest for the four majors, since their volume is the highest. With high volume the dealer is usually assured of having ample liquidity to meet your trading needs, so they charge you less through the spread. For more obscure, less traded pairs, the spread will be more, since dealers assume more risk in completing those transactions.
The spread itself is made up of pips. A pip is simply an incremental unit in forex. In stocks, you call them ticks or points. That makes sense because usually all stocks are quoted in the same currency. In forex, each currency may have a different incremental unit. For example, a quote in EURUSD might be 1.3240, versus a quote in USDJPY at 107.87. What is the incremental unit? There is no common unit, so one was created, and it was named a pip. A pip is always worth $10 if the pair ends in USD. If not, you will need to refer to a pip calculator to get the value, since these per pip values can vary, even within the same currency.
Q: How do you trade forex?
A: There are two major methods for trading forex: fundamental and technical.
Fundamental analysis relies upon a broad and near-expert understanding of multi-national macroeconomic statistics and events.
Fundamental traders believe that the value of a pair is determined by the underlying health of the two nations involved in the pair. A high value for GBPUSD, for example, would suggest a better economic outlook in Britain vis-à-vis the United States. Global events like news, catastrophes, politics or economic shocks all play a role in determining price.
Technical analysis is based on the mathematical analysis of price, and of many variables which all derive from price. Technical traders believe that technical indicators include fundamental analysis and also provide repeatable, tradable patterns. Technical traders use charts to determine support and resistance, draw trend lines, or analyze measures like moving averages, etc.
Whichever camp you belong to determines your trading approach. A fundamental trader may take the Warren Buffet approach and buy-and-hold a pair, expecting long term returns. A technical trader may play long term as well, but usually day trades. Some fundamental traders trade on news, which may just be certain days of the month.
Q: What is leverage?
A: Since dealers have ultimate control over accounts and trades, they are willing to loan money to the trader. That’s called margin – basically a loan from the dealer to the trader, but based on the trader’s equity. Normally if the trader wants to trade EURUSD he would need $100K, but not if the dealer offers margin. Margin is another word for leverage, with a little difference in concept.
Some dealers will allow you to trade a full standard contract with just $500 in margin available. That means the user has to have at least $500 (or really $500 + spread) in their account to trade. If at any time their account balance equals or drops below their margin requirement, the dealer will liquidate all of their positions. That’s called a Margin Call. So if you traded 5 contracts with $4,000 in your account, you would be using $2500 in margin. If the trade went against you $1500, you would be taken out.
When you traded the one contract with $500 in margin, you controlled $100,000. That’s leverage. It’s 200:1 in this case (leverage = $100,000 divided by $ per contract as a % of total equity). In this example, you would only be employing 200:1 leverage if your account equity was $500. Most dealers have scaling margin which allows smaller accounts to use something like 200:1 and bigger accounts to use 50:1, or 10:1. If you had $20K in your account and played 40 contracts, that would be 200:1 leverage. $100K with 10 contracts is 10:1.
Leverage is one of the biggest reasons people trade forex, but it’s also one of the biggest reasons people lose money. Be careful to manage your leverage position when trading, especially when starting out.
Q: What tools do I need when starting out?
A: First, common sense and good judgment! Dealers make it very easy for new traders to come in and make money, but many of those same features make it possible to lose money very quickly. Use the demo system to start, and then be sure to begin with one mini contract (controls $10,000, not $100,000 like the standard contract).
Beyond that, you will need a trading platform, charts, and/or a news service. Joining a trading community with forums is also a great way to learn.
Most dealers will provide a trading platform. Some offer an automated platform on their own, and others offer an automated platform through a third party. FX Engines offers its automated trading platform with many features for beginning traders, and routes all trades through FXCM, the world’s largest dealer. Other automated trading platforms may be different.
Charts are sometimes offered through the trading platform, as is news. If not, check one of the many forex forums online to get a sense for what people think are good chart and news subscriptions, then give those a try.
Q: What’s the most important element in trading forex?
A: Discipline. That’s easy to say and much easier to practice in other markets. Forex makes it tougher because it’s always open, and big moves are always happening. It’s one of the reasons why an automated system is so valuable in forex.
Even if you forego automation, you need to develop a script for trading that you can always follow. Consistency is the key, and your ability to stay consistent will surely be challenged.
Learn all you can, build a system, and practice trading before you risk a dollar. The early losses that come from a rush to trading can damage confidence, and that can be difficult to repair. The markets are going nowhere – if you take the time to learn and then consistently apply your knowledge to this huge market your rewards will surely follow.
source: fxstreet.com/education/forex-basics/welcome-to-forex
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Realized vs. Unrealized Returns
by John Forman
Traders deal with two different kinds of returns when they speak of profits and losses made in the markets. Realized returns, often referred to as "booked", are those which come about as the result of a position which has been closed out. Unrealized, or "paper", gains and losses are those which involve open positions. An example of a paper return would be when one buys a stock at $100 and it rises to $110, but the trade remains open. In this case the trader has an unrealized gain of $10. Were the trade to be closed out at that price, that $10 gain would become a realized, or booked, profit.
While it may seem a fairly trivial point, the concept of paper vs. booked returns is an important one in the realm of trading and money management. Debates are often had as to whether paper losses are real, or whether they only become real when actualized. This is a key distinction which can play a major role in how one trades, depending on the market in question.
Where one is trading primarily in cash terms in a market like stocks, the differentiation between paper and booked returns is not very important. No matter how much the market moves either in favor or against a trader's open position, it does not impact her/his ability to enter further trades. Imagine, for example, a trader has a $10,000 account, and buys 100 shares of XYZ at $50. That leaves $5000 remaining in the account ($10,000 - $50 x 100, not accounting for transaction fees). It matters not at all whether XYZ rises or falls. The trader will still have $5000 available to enter new positions. This only changes when the XYZ shares are sold and the profit or loss booked.
When one trades a market such as futures and spot foreign exchange, however, there really is no such thing as paper returns because these markets are based on margin. As such, all profits and losses are realized because they directly impact one's available margin. Let us again imagine a trader with a $10,000 starting account value, this time in the futures market. If the margin requirement for a 10-year note futures contract is $2500, and the trader buys two contracts, then the account is left with $5000 in available margin. If that 10-year note contract rises by a point, the trader would have a profit of $2000 on the position (1 point on a 10-year futures contract is equivalent to a 1% move in the value of a $100,000 position, or $1000). Unlike in stocks, this $2000 gain is very real in that the trader now has $7000 in available margin to put to use on other trades. Were the 10-year note to instead fall by a point, however, the trader would only have $3000 free to use as margin.
Understanding the impact of realized and unrealized returns is something key in the development of both money management schemes and trading systems. Failure to recognize how these differences play-out in one's account can lead to major errors in the assumptions underlying position sizing, and exposure. It can mean the difference between a worthwhile system and a useless one, or between a safe risk profile and a reckless one.
source: fxstreet.com/education/forex-basics/realized-vs-unrealized-returns
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Seven Big Things Professors Won't Teach You (But You Should Know)
by John Forman
Are you studying finance? If so, then terms like present and future value, efficient market theory, capital budgeting, arbitrage pricing and a whole slew of other exciting phrases are becoming part of your vocabulary. And if you’re thinking about studying finance in college or graduate school, be prepared to be lectured on those topics and more during your coursework. This is all well and good. If you plan on a future in finance, you’ll need a grounding in financial theory. Here’s the problem, though. Your instructors won’t teach you the good stuff, the stuff that can really help you excel in your job or make money in the markets. That all falls under the umbrella of “practical knowledge” which is not what college curricula are generally designed to pass along to young, eager minds looking to learn.
Have no fear, though! This report will help fill in the gaps. While it’s impossible to cover everything you could possibly want to learn in this brief space, here you will be given seven specific areas of focus. It is my intent to provide you with something of a guide to help you go beyond your text books and take your financial education to another level. From there you’ll be able truly accelerate your growth at a rapid pace, allowing you the opportunity to have more success. Ready? Let’s go.
#1 You Really Can Make Loads of Money in the Markets
Have you ever had an instructor talk about all the money there is out there to be had trading the financial markets? Unless you’ve had the great fortune of having one of those rare professors who actually has experience doing just that (and there are a few), the answer is most likely, “No”. This is because most finance faculty have had the efficient market theory drilled in to their heads for years. After all, every bit of research they have ever seen says you cannot make “excess profits”. Well, that simply is not true.If you want to trade the markets, or even think you might want to, then these three books by Jack Schwager are a must read: Market Wizards, The New Market Wizards, and Stock Market Wizards. These books are all essentially a collection of interviews in which the great money managers, investors, and traders or our time share their experiences with Schwager, a respected professional in his own right. These men and women have literally made billions in the markets. You get direct insight from these market luminaries, and Schwager also provides tons of educational content in his own right through glossaries, discussions of market topics, and outstanding summaries of the knowledge and understanding the interviews impart. Belief that you can achieve awesome results is the first component to being successful, and the Market Wizard series will definitely make you believe! There are other books with a similar concept, but Schwager’s works are by far the worth owning. You will absolutely read them again and again, and they will more than pay for themselves.
#2 The Stock Market is Not the Only Market
If you read the Market Wizards books noted in the previous section, you will quickly realized that there is money to be made in all sorts of different markets: stocks, bonds, currencies, commodities, futures, options. In fact, the equity markets are really a minor player in the realm of modern global finance. This is not something that gets a lot of play in the classroom, though. Why? Because of the focuses on portfolio theory, capital budgeting, and other subjects which end up have relatively little importance to the average financial professional. In particular, you should explore currencies and fixed income in more detail than what you will probably get in your classes.The currency market (also known as foreign exchange, forex, or FX) is by far the largest. Currencies are usually discussed in an international finance type of course which provides a cursory coverage at best. Yes, the triangular arbitrage is important, but even with the advent of many so called “trading rooms” in business schools across the country, students are not being taught the real practicalities of forex trading and the impact of foreign exchange market movements on the rest of the financial system. The fact of the matter is that currency trading is now even easier than is the case for stocks. You can do it on-line, 24-hours per day. Those interested in learn more on the topic, or taking the plunge in to foreign exchange trading would do well to start with Cornelius Luca’s excellent book Trading in the Global Currency Markets. It is a good introduction to the market, including the terminology and analytic methods one needs to talk the talk and walk the walk. For those with an interest in learning how some of the real currency superstars think, Investment Biker and Adventure Capitalist by Jim Rogers and Soros on Soros and The Alchemy of Finance by George Soros are well worth the read. Rogers is a well known investor and commentator and just the name “Soros” in and of itself has the power to move markets.
Perhaps even more important than foreign exchange, if smaller in actual trading volume, is the fixed income market. Fixed income encompasses tradable instruments ranging from very short term paper such as T-Bills, Eurodollars, and Commercial Paper out to long-term debt in the form of Treasury and Corporate Bonds, not to mention mortgage and asset backed instruments. Fixed Income securities are issued by governments, government agencies, municipalities and companies all over the world. The sad thing is how little coverage this topic gets in financial education. This despite the fact that the basis of fixed income is cash flow, which is also the core of most valuation methods currently taught in college business programs. Interest rates drive everything, from the action of the stock market to fluctuations in currency exchange rates. That is why even the slightest little comment from folks like Alan Greenspan and other similar monetary authorities around the globe is analyzed for its meaning and potential impact. An understanding of the fixed income markets will benefit you enormously, regardless of what area of finance you specialize it. To that end, The Bond Market by Christina Ray is a worthwhile reference. Ray breaks down the intricacies of fixed income securities in a very easy to understand fashion. Of course there is also Fabozzi’s The Handbook of Fixed Income Securities, which can probably be found on every trading desk. The Fabozzi book is comprehensive in nature, where as the Ray book covers fewer topics, but breaks them down in a more manageable, practical way.
There are, of course, many other markets and tradables beyond these. The point I want to reinforce here, however, is that as a financial professional you need to be aware of what is happening in currencies and interest rates. Failure to do so means you will have an incomplete market picture for your analysis.
#3 The Mind is More Important than the Tools
In finance class we learn all sorts of things, like how to calculate present and future values and how to price securities. Finance is all about numbers, formulae, and analysis, right? Wrong! We are given all sorts of tools to use, but there is something very important missing - an understanding of the human mind and its impact on how those tools get applied, misapplied, or not applied at all. It would behoove anyone with an eye on the market activity to take a few psychology classes along the way.The financial markets, no matter how they may be characterized otherwise, are a collection of individuals interacting with each other. As such, it is important for us to understand the impact of collective psychology. You merely have to watch the markets to see the impact of group think. The bubble in internet stocks that burst in 2000 is a perfect example. Clear-headed market analysis went out the window as everyone jumped on the bandwagon thinking that there was no way to lose. Then, on the downside it was the exact opposite. The no one wanted anything to do with stocks in certain sectors, not because of any legitimate evaluation, but because they had been burned before. This sort of thing happens to greater or lesser degrees all the time, in all time frames. A very good book on the topic is Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay and Bernard M. Baruch. It explores the whole topic of manias, especially where it relates to the financial arena, and should give you an excellent view in to mob mentality.
But we should not just think about the market when we think about psychology. If you want to be a successful trader or investor, you need to understand what’s going on inside your own head as well. Being able to produce sustained above average returns takes more than luck. It takes a major mental commitment and knowledge of the pitfalls we can create for ourselves without even knowing it. We can have the best trading system in the world, but if we cannot stick to the methodology because we allow our mind to override the signals or analysis, what good is it? Dr. Van K Tharp, who is profiled in Market Wizards and has worked with a great many traders, put together an excellent work on the subject. Trade Your Way to Financial Freedom is a good follow-on to the Market Wizards series. Another good mental book is The Way of the Warrior Trader by Richard D. McCall, and Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude by Mark Douglas is a popular title on the subject as well. Be sure to take seriously the psychology of trading. It really can make the difference between success and failure.
#4 Technical Analysis is Respected
The weak form of the Efficient Market Hypothesis essentially tells us technical analysis, which focuses a lot on historical price movements, is worthless because it has already been factored in to the market price. As such, technical analysis has been widely looked down upon in academia for years. Well, the real word of trading and market analysis takes another view. It is true that technicians were once a rare and misunderstood breed. Over the past decade or so, however, the discipline has become increasingly valued as a legitimate methodology. Academics still raise their eyebrows at the mere idea that one could make money looking at charts, but practitioners are paid to get results and many use technicals to do just that. As such, technical analysis should be seen as a legitimate analytic tool for your own work in the markets.Here’s the thing, though. Technical Analysis covers a vast array of techniques and methods. Some folks are chartists. Others use calculated indicators. Still others use astrology and other more esoteric methods. As suggested above, in a wide definition, technical analysis is the use of past market action to determine likely future action. The idea is that markets will react somewhat predictably to certain occurrences. Underlying that notion is the fact that people react somewhat predictably to stimuli, and the market is nothing more than a collection of people. Ah, ha! Psychology comes back again. I told you in the last section it was important.
I am not here to advocate technical analysis, though. It is merely one of many available tools. Some folks prefer it. Others are more fundamentally oriented, using earnings, economic conditions, etc. to determine valuation. A lot of it comes down to personality and interests. You learn the basics of fundamental analysis (pro forma earning projections, growth rates, discounting future earnings, etc) in your finance classes. If you learn technicals at all, is probably only in passing. It is up to you to explore the topic on your own. There are several very worthwhile resources at your disposal in that regard. Tops among them is John Murphy’s Technical Analysis of the Financial Markets. This book is widely considered the bible of technical analysis and will give you an outstanding overview of the topic. The Steve Nison books on candlestick charting, starting with Japanese Candlestick Charting, are excellent as well. Mind over Markets by Eric T. Jones discusses the “Market Profile” technique, which is not widely known in academia but has many adherents in the markets.
Perhaps the best book on combining technical and fundamental analysis is How to Make Money in Stocks by William J. O’Neil. Among titles to consider about developing trading systems there are Campaign Trading by John Sweeney, Street Smarts by Laurence A. Connors and Linda Bradford Raschke, Long-Term Secrets to Short-Term Trading by Larry Williams, and Trading Systems That Work by Thomas Stridsman.
Anyone seriously considering the pursuit of technical analysis, personally or professionally, should consider joining the Market Technicians Association. The MTA provides a certification and other educational programs, and is a good way to meet technicians from around the world. Also, Stocks & Commodities magazine is the industry standard for the discussion of technical analysis and trading system design.
#5 You Can Trade Real Estate
You know all that accounting you have to learn, and all those finance basics they make you take before you get to the good stuff? Well, you can put that education to use in the real estate market right now. The most advanced topic one needs to understand to play the real estate market is that of leverage, or to put it another way, how to use other people’s money (OPM). Property can be bought and sold just like any other asset. You can trade it, which basically means buying a property and selling it shortly thereafter, preferably at a higher price, oftentimes after doing some fix-up work. You can also invest in real estate by going for longer-term price appreciation and/or cash flow from rents. The best part is, anyone can do it, regardless of income or education.Analyzing a potential real estate purchase is much like doing fundamental analysis on a stock you might like to buy, and oftentimes with similar time frames in mind. You try to determine a fair market value, see what kind of returns you can generate, etc. Obviously, owning property does not provide the same liquidity, nor does it have the same kind of potential for that trading rush, but there are advantages. You can buy property for very little down, sometimes with nothing at all down. Can’t do that with stocks where at a minimum you have to have 50% for the margin requirements. That means your potential returns in real estate can be truly exceptional.
With all this in mind, you would do well to learn all you can about real estate, and there is certainly a lot of information out there. If there is a class available to you, take it. Talk to people you might know in the business - realtors, bankers, attorneys, investors. It is not necessary for you to have loads of money, great credit, or any of what we normally get told are the requirements for buying real estate. Creativity, persistence, and a strong desire to succeed are more important. A couple of books that will help you learn some great techniques for building a real estate investment program are Nothing Down for the 2000s and Creating Wealth by Robert Allen, the man who put the concept of little or no money down on the map. Another worthwhile addition to your library would be Ira Wealth: Revolutionary Strategies for Real Estate Investment by Patrick W. Rice, Jennifer Dirks. This book provides a good discussion of how IRA accounts can be used to invest in real estate, despite what you might have been told by banks and brokers. Real Estate is a fantastic way to build wealth, and the best part is the tax code actually works in your favor! Make sure to take a look in to it for yourself.
#6 Study Personal Finance
Some colleges actually have personal finance courses available, but oftentimes business students consider such classes beneath them. I should know. I was one of them. It isn’t high finance. There’s no glamour in managing your checking account, and insurance can put one to sleep. Wrong attitude! A good understanding or personal finance will go a long, long way in life. In fact, it will probably be more valuable to you in the grand scheme of things than all the stuff in your finance course text books. Personal finance covers a wide array of topics. I will briefly touch on some of the bigger ones.Savings and investment is probably what most people think of when we talk about personal finance. In short, it is what you do with the income you have above and beyond your normal living expense, commonly referred to as discretionary income or funds. Obviously, retirement savings is a hot topic. You need to be fully educated on whatever program your employer provides, if any, and what options you have outside that. Make the best use of what’s available to you. The more funds you can get to work early, the better for the long term situation thanks to the magic of compound interest. At the same time, you should be putting money aside in a rainy day fund. You will hear different experts recommend anything from a month to a year worth of salary as a reserve against loss of income, emergencies, etc. Your situation will dictate what is right for you, but something should definitely be set aside in a secure, easily accessible place. Of course if it’s your ambition to trade, you’ll want a program in place to build up a sufficient bankroll for that purpose. In most cases, $5000 is the recommended minimum. Starting much lower than that will make transactions costs significant, plus you will have fewer options in terms of working within a risk structure suitable to your needs.
A very important area of personal finance, and one that needs more focus, is debt use and management. We are a society fueled by debt. That has its plusses and minuses. Borrowing, when handled properly, allows us to do things we would not have been able to do otherwise: buy a car or a house, pay for our education, fund investments, etc. Unfortunately, too many people misuse debt, especially credit card debt, and get themselves in trouble. A lot of these problems can be remedied through discipline. Do you really need those DVDs? Are you dining out more than your budget allows? Remember, you are going to have a hard time building up investment capital if you have to pay all your excess earnings out to the credit card companies. Moreover, you do not ever want to put yourself in a potential bankruptcy situation? It takes a long time to recover from that kind of filing.
The last big personal finance topic we will cover is estate planning. For a young person that sounds like something way off in the future. True, it is, but that does not mean there are not things you need to be looking at now. Do you have a will? Not everyone really needs one, but if you have assets you would like to make sure go to those you want receiving them should anything ever happen, you should put something together. The process is not that difficult. Do you have life insurance? Again, you may not need it. Many single people do not, whereas most folks with a family should probably have a policy. It’s a topic a lot of folks hate even think about, but it is well worth the time.
There are a lot of things related to personal finance you can do now, or at a minimum learn about, that can help you throughout your life. For example, taxes will be an ever present part of your life. Understanding them, even if you never do your own returns, cannot help but provide benefits. Take that view with the whole arena of personal finance. Make it a habit to explore something new all the time. You never know when it could come in very handy. Maybe you’ll even do it for a living!
A very useful tool for improving your personal finance acumen is Cashflow® , a game you can play in board version, or on your computer. The game covers a wide range of topics in a fun, entertaining fashion.
#7 Beware of the Experts
Thinking for yourself is a good thing. Learn to do your own due diligence when it comes to your money. There are lots of so called experts out there. They get quoted in the media all the time. Be careful what you read in to that, though. Newspaper columnists, for example, want something to keep the reader’s attention, make them come back again. Sometimes that means people get quoted, even though they really do not have much to say. An expert is born! I speak from experience on this topic. Myself and my former colleagues often had inane comments not even intended to be serious analysis find their way in to major columns. We’re talking significant business media, not to mention getting picked up by the wires and local papers across the country. Reporters also have favorite interview sources. That can be great if the source is good, but if not the interviews and quotes will give credibility to one who may not deserve it. For that reason, you should really take anything you hear or read with a grain of salt. People have a lot of different perspectives which will not always match your interests.There’s also the fact that sometimes even the best and the brightest can really mess up royally. We need look no further than Long Term Capital Management (LTCM) to see that. A group of very smart, very successful traders did quite well for a while. Then, it all fell apart and forced some major action by the monetary authorities to prevent what could have been a global financial market disaster. You can learn more about LTCM by reading Roger Lowenstein’s well titled book When Genius Failed, which documents the rise and fall of the firm and its major figures. There was also a PBS documentary you can get on video called Trillion Dollar Bet which covers mostly the same topic.
The bottom line is that you need to make sure of the value you are getting from these so-called experts. Use your own education, experience and basic common sense, mixed in with a good dose of research, to see if what they have to offer is a) credible and b) worthy of your attention. Even then, once you have decided that they can help your toward your goals, make sure any recommendations you receive fit in with your situation.
By the way, this goes for you too. Do not allow yourself to get big in the head once you have achieved some success and set yourself up for a major reversal. The old saying “Pride goeth before the fall” is very true. If you are not careful, you can lose track of what made you successful and find yourself suffering a major set-back. Refer to some of the interviews in the Market Wizards books noted earlier to examples.
Hopefully you have at least started the process of expanding your financial awareness beyond the narrow bounds of what college finance programs provide. The finance industry and markets can be both incredibly rewarding and highly frustrating. If you take the contents of this report to heart and use it to guide your own personal education, I think you will find yourself experiencing more of the reward and less of the frustration.
I was never the best student growing up. Homework wasn’t something I focused on a whole lot as a kid, especially when I could just get it done in homeroom! We’re not kids anymore, though. If you haven’t already, you will come to find that homework is an important part of life. I refer not to bringing work home from the office, however. Instead, I mean being prepared. Whether it’s an interview, a meeting, a class, a trade or investment, or just life in general, it always is best to go in prepared. Consider the topics addressed in this report, and do your homework.
source: fxstreet.com/education/forex-basics/seven-big-things-professors-wont-teach-you
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Sunday, September 09, 2007
Forex Trading Systems
A Forex trading system is a method of trading that uses objective entry and exit criteria based on parameters that have been validated by historical testing on quantifiable data. Although there is no hard and fast rule for design a Forex trading system, different experts have different opinions; however, the essence remains the same. In general, the Forex trading system provides the discipline to overcome the fear and greed that in many cases paralyzes a trader, and prevents him or her from making timely decisions. Each order placed is governed by a pre-determined set of rules that does not deviate based on anything other than market action.
Like any other trading system and method, Forex trading system boils down to risk versus reward. How much capital you are willing to put at risk for a given level of return should be your top consideration. Beyond that, one must consider costs, trading activity, and markets traded before investing. Indeed, Forex trading system is a good mix of art and science - art because it comes through practice, and science, because it has certain rules, regulations and principles to be followed. Knowledge as well as technology plays a very vital role in every decision you take.
In the field of Forex trading systems, mechanical trading systems are techniques that make trading decisions for you. You input the trading data, and the system generates a response that indicates the appropriate action. You buy, sell, or do nothing depending upon the formulas this system uses and operates upon. The latest computer versions of these mechanical systems are complete "black box" operations (you cannot have all the emotion involved when you follow a specific system). Perhaps, that is one of the reasons that these systems are called mechanical systems. But that doesn’t mean that they aren’t intelligent enough. Turn the computer on, start the system, and it updates your database, and generates trading recommendations, and places your orders directly to the brokers.
Unquestionably, in Forex trading systems, speed is of the essence in these hectic times. Every nanosecond counts when you are trading using five minute charts. The most basic Forex trading systems rely on moving averages. The more "sophisticated" systems use combinations of moving averages of both price and volume. The most "expensive" systems incorporate stochastics, which are the mathematical techniques for a non-linear science.
source: http://www.onedaytrades.com/articles
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Forex Training - Its Need and Some Useful Resources
The Forex market is perhaps the biggest financial market in today’s world. According to the latest stats, today more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. There is so much to learn about this highly competitive, volatile and fragile market that we may find it a daunting task to learn it inside-out, so we do need some sort of forex training or education to equip our self to perform better in the market.
Before starting the forex trading, you should begin your Forex training. A professional instructor can assist you in learning different terminologies, concepts and process as a whole in forex trading. In a good Forex training, there are no high-pressure sales pitches, no tricks, and no hidden agendas, but just plain knowledge. Forex training provides traders the ability to take advantage of the foreign currency exchange. This Forex training empowers investors to become world-class forex traders.
In any Forex training program, it is recommended that don't invest in any market, the stock market, futures, mutual funds, bonds or the foreign currency exchange, until you first invest in yourself. There are many types of Forex training and education for trading techniques and methodologies. These are almost for anyone to everyone (for the novices and experienced traders), helping them obtain the skills, knowledge and abilities to successfully trade in the foreign currency echange.
During your Forex training you will learn to control your own order flow by using the state-of-the-art ECN for Forex trading. You will learn how the Pros make money and learn the differences between Forex and equities trading. Decide for yourself, which is the best instrument for you. Don’t be surprised to find that you can use both in harmony. Forex offers 100 to 1 leverage and 24/6 trading hours – trade in the evenings, trade in the early morning before work. Learn to trade with discipline, a plan and the technical tools that the World currency Traders use.
Literally, there are numerous online and offline resources for Forex training. Some of most common and highly effective ways to get forex trading knowledge are using live seminars, online webinars, trading books, subscription services, etc. depending upon the individual taste, preference, availability and budget constraints there is something to suit almost everyone. For example, learning forex analysis through trading book will enable experienced traders and beginners to trade with confidence. You can run your own successful forex trading business part time or full time from home and generate cash flow in rising or falling markets. You can earn a great income online by training yourself with trading books.
However, the problem is most books on the subject cover dozens of technical analysis indicators or discusses macroeconomics. There is too much padding and not enough focus on what you really need to trade successfully. Don’t worry in that case; there are several other ways to train you.
The live seminars delivers a comprehensive aggregation of daily information from the exchanges around world, brokerage firms, regulators and other parties involved in these industries that is not found elsewhere. The live seminars provides you headlines and hyperlinks to media stories, press releases and notices, which gives you an easy to scan and functional format delivered to you every day through internet.
Forex Training Resources:
Forex-training.com provides high quality training and educational resources for foreign exchange ("Forex") and commodity traders. This site contains information, which will allow the novice to develop an understanding of basic trading techniques, risk control, and finally opening, and managing a Live trading account. For more details, visit: http://www.forex-training.com
Market Traders Institute is proud to offer free Forex education, at no charge, Lesson One of sixteen, is an excellent forex tutorial. The CEO, President and founder of MTI, teaches the ins and outs of the Foreign currency Exchange Market. There is absolutely no cost. To watch a sample Forex tutorial, visit:
http://www.forextips.com/lesson1part1.htm
Peter Bain's currency trading Course is considered to be one of the top Forex Courses that is a complete trading solution. You get all the information you need to trade your own account profitably - Get a front row seat at home with author, trader and educator Peter Bain in this exclusive video seminar release - enjoy and learn from this content-packed live Forex trading seminar. For details, visit:
ebooks for forex trading: according to the company sources, this is no-nonsense eBook manual that is very difficult to find, and has a very limited circulation among top traders - plus you'll receive 6 bonus trading ebooks. For more details, visit:
source: http://www.onedaytrades.com/articles
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Introduction to Forex Charting
Forex charting is nothing but a software program specially designed to trade forex efficiently and effectively. Forex charting makes understanding the rises and falls of rates clear and simple. As a tool for your investments, Forex charting comes in handy all the time. You need to see where the market is going and, as a result, understand what leads to these fluctuations. Studying Forex charting helps you anticipate the occurrences that will spurn the next change.
Forex charting is not just a tool but also an insight. The secret of successful trading is to take a step back from the market. Trade with the big picture in mind at all times and don't follow the day-to-day market movements that are temporary in nature. Daily market talk can misguide you and sometimes can hypnotize you if you follow it too deeply. You have to see the forest for the trees. That's why you need charting Software that shows you historical trend data as well as current intraday trend data.
Generally, Forex charting software focuses on the big picture with a wider vision. It prompts you to follow the market and not individual stocks. The market in its entirety has more influence on individual stock prices than any other factor. Even the best stocks decline in a bear market. That's why you need charting Software that shows the trends for indexes and exchanges. Basically it is software to trade forex -- such as the trading applications made available by brokers that includes real-time bid and ask, instant click fills, full charting software, etc.
Forex charting software includes many features as simple click fills. In this software an indicator is a series of data points that is derived by applying a formula to the price data of a particular security. Price data includes any combination of open, high, low or close points plotted over a period of time. Some indicators may use only the closing prices, while others incorporate volume and open interest into their formulas. The price data is entered into the formula and the software produces a data point. The goal of Technical Analysis is to build indicators and make indicator analysis to build market-timing strategy.
A fully functional and carefully designed Forex charting software can provide you many benefits along with simplifying your analyses. These softwares are user friendly and easy to use. Charting softwares are realistic true portfolio trading simulator and back testers are also available in softwares for your trading. With these softwares you can back test your trading system the way you would trade it and objectively analyze its performance without any of the limitations of single security.
Some useful resources for Forex charting are:
MTI Forex charting is the choice of professional Forex traders. A true multiple time frame analysis software package for professional Forex traders. The charts have the capacity to plot indicators on three different time frames, enabling traders to plainly see what the weekly and daily indicators are showing, compared to their intraday indicators on the same chart, all in real-time. For more details, and to register for trial visit: http://www.forextips.com/register_charting.htm
eSignal offers a comprehensive suite of award-winning foreign currency charting services that provide real-time, streaming market information and intelligent, decision support tools for the active trader. For more details, visit: http://www.esignal.com
CQG - Provides advanced charting analytics for all markets, including forex.
http://www.cqg.com
Infotec - Offers charts on various markets and in various time frames.
http://www.infotecnet.com
http://www.netdania.com
source: http://www.onedaytrades.com/articles
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Popular Forex Pairs Around the World
As far as popular Forex pairs are concerned it is really difficult to pin point the exact pairs because of changing nature of the economy, but still there are many pairs that are relatively strong as compared to other currencies. The most “liquid” currencies in the forex market are those of countries with low inflation, stable governments, and respected central banks. Nearly 85% of daily transactions involve the major currencies, including the U.S. Dollar, Japanese Yen, the European Union Euro, British Pound, Swiss Franc, and the Canadian and Australian Dollars. In other words, EURUSD, GBPUSD, USDJPY, USDCHF, AUDUSD, USDCAD are amongst the most popular pairs to trade around the world.
When dealing in the pairs, we should know what exactly “short” and “long” positions refer to. In simplest terms, short positions are taken when a trader sells currency in anticipation of a downturn in price. So, how that helps? Making this move allows the investor to benefit from a decline. Similarly, long positions are taken when a trader buys a currency at a low price in anticipation of selling it later for more. Making these moves allows the investor to benefit from changing market prices. So, we shouldn’t forget that since currencies are traded in pairs, every forex position inevitably requires the investor to go short in one currency and long in the other. That is the real crux of the story. That is the point where whole juice of this concept lies.
So, we have explained in the above-mentioned paragraphs regarding the most popular pairs and why they are the most preferred pairs. One of the most important factors is that the full range of economic and political conditions impact currency pricing. It is generally held that interest rates, inflation rates and political stability are top among important factors. At times, governments participate in the forex market in order to influence the traded value of their currencies. Not only just the economic and government factors, but other market factors also such as very large orders can cause extreme relative volatility in currency prices. The sheer size of the forex market prevents any single factor from dominating the market for any length of time. The resultant is the end result of these factors along with other factors (sometimes even unknown to the experts, as they are circumstantial in nature).
So, whenever we think about making profits, we need these popular pairs, which are relatively strong. In macro terms there are two kinds of factors that influence the decisions of currency traders: economic factors and fundamental factors. Absolutely there is no foolproof strategy that can be used as template as some of these factors are uncontrollable in nature. However, those who follow economic fundamentals use government issued reports, current news, and broad economic trends to anticipate movements in price.
source: http://www.onedaytrades.com/articles
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