Day trading the foreign currency (forex, FX or interbank) market is definitely one of the more challenging endeavors an aspiring trader can pursue. The higher degree of leverage (as high as 50:1 or 100:1) available in this market can increase profits, but it equally accelerates losses.
This makes the issue of trade timing and selection that much more critical to success. Because of the lack of volume data in the spot currency market (i.e., there are no Level I or II quotes, or time and sales data), newer traders will find they will need to develop much more disciplined strategies that rely less on broader market dynamics and more on raw price action and individual market “micro structure”.
The Big Ben strategy exemplifies this approach. It is a day-trading technique that takes advantage of the shift from trading from one market center to another in the 24-hour forex trading environment.
The Big Ben strategy Big Ben is a currency-specific trading strategy designed to capture the first directional intraday move that often occurs within the first few hours after the Frankfurt/London market openings, which begin at approximately 1 a.m. ET. The strategy works best with the British pound/U.S. dollar (GBP/USD) rate.
Because this currency rate trades lightly outside of London trading hours, the surge in trading every morning in the U.K. gives it a “œreal” market opening, which the strategy looks to exploit. Figure 1 shows pound/dollar trading is virtually nonexistent during Asian trading hours. When London opens, however, the pound/dollar accounts for nearly one-quarter of all forex trading. Currency rates with more continuous, 24-hour trading will have less of a distinct open/close as they pass through the different money centers.
For example, the dollar/yen rate (USD/JPY), which dominates forex activity during Asian trading hours (78percent of volume), still accounts for 17 percent of trading during Euro pean hours.
The rules The following rules are for short trades, but the strategy can be reversed to trade on the long side. Setup:
The pair makes a new range low at least 25 pips (a pip is the forex equivalent of a tick, or minimum price fluctuation) below the opening price after the early Frankfurt/London trading in the GBP/USD rate begins around 1 a.m. ET.
The pair then reverses and trades 25 pips or more above the opening price.
The pair then reverses once again to trade back below the intraday low established in step 1.
Sell a breakout (at least seven pips) below the London low.
Once filled, place an initial protective stop no more than 40 pips above the entry price.
After the market moves lower by the distance between the entry price and the stop, cover half the position and trail a stop on the remainder.
These simple rules position you to profit from common behavior that can occur in the pound/dollar when the London/European market opens. (Kristian Kerr)
You can do it too! You can use the Internet to start forex trading and build a new source of income for yourself. I have created this website/weblog to help you to achieve that.
I have been working as an internet marketer for so many years. There are different kinds of home businesses that I can recommend but because of so many scam programs and the raising competition, I prefer to recommend you to learn and work on forex or online foreign currency exchange or currency trading.
There are two good reasons for that: 1- You will not be scammed and 2- Competition will have no effect in this business. In fact, foreign currency exchange is the only business that becomes more profitable for everybody if more people work on it. It is amazing, isn't it?
There are a lot of similarities between currency trading and stock trading but currency trading is easier to learn and work.
There is a risk in this business like others but if you learn it properly, you will be profitable. It is like driving. You will hurt yourself and others if you start driving before you learn it properly. And you will enjoy driving if you do it after passing the training stages and enough practice and experience.
Today we are able to sit at our personal computers and trade so many different currencies in the forex market through the internet and without having to go to any bank or money exchange agency or making even a small phone call. Everything can be done through the internet and from home.
Why Is Forex Trading a Suitable Business?
It is easy to learn: There are a lot of good home businesses but they can be hard for most people. For example, blogging is a good home business but it is impossible for 99% of people because they are not writers and they can not write. You can learn forex trading easily. You just need to be serious and organized.
It is a different home business: In other online home jobs, you have to make websites, advertise, sell, refer, recruit, support and ... but in this business you don't have to do any of these things.
It makes a considerable decent income for you: You can make thousands of dollars through forex trading if you learn it properly. Once you learn it, making money will be as easy as 1, 2, 3. Of course let me tell you again that there is a risk. Those who start currency trading without having enough knowledge and experience will lose and give up. It is like any other business. You have to learn it first.
It is safe: Yes, it is safe because you will not be scammed. Once you learn it and choose a well-known and reliable broker company (you need to join a brokerage company to become able to trade currencies), you will have nothing to be worried about.
It is stable: Forex is an international business not just a business opportunity created by a small local company. So it is a stable business. It is not like other businesses that make money for a limited time only and then become slowed down, bankrupt or closed. Currency market is always ready for the traders to trade and make money.
If you are a beginner, you can use the training articles and learn how to trade and make money. If you are already a forex trader, you can take the advantage of my daily reports to trade.
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The US Dollar looks likely to challenge key resistance levels against the Euro, British Pound, Canadian Dollar, and Australian Dollar through upcoming currency trade. Yesterday’s false break lower against the Euro and British Pound proved short-lived, and we maintain our bearish bias on the EUR/USD and GBP/USD.
Despite a false break through yesterday’s trade, the Euro remains in a tight wedge formation against the US Dollar. The falling trendline dating back to early October has thus far held, and the Euro/US dollar pair subsequently sees support at recent monthly lows of 1.2400. Given overall bearish momentum, it seems increasingly likely that the Euro will go on to challenge said support through upcoming trade, and a failure eyes April, 2006 lows of 1.2065. Our short-term bearish bias remains intact absent a Euro/US Dollar breach above resistance at 1.2835.
The US Dollar/Japanese Yen has seemingly broken its wedge formation, and a dip below support at approximately 95.70 suggests that further short-term losses are likely. Next price floors come in at the important 61.8 percent Fibonacci retracement of the 90.90-100.50 move at 94.60, which likewise coincides with an intraday double-bottom from November 12. Previous trendline support has now become resistance, and the USD/JPY has shown difficulty climbing above 96.00. Our very short-term bearish bias remains intact as long as price remains below the pair’s falling trendline at approximately 97.00.
The British Pound/US Dollar pair remains in much the same situation as the Euro/US Dollar, as a false break above its recent trend channel leaves the GBP/USD confined within its month-long downtrend. Trendline resistance remains near the psychologically significant 1.5000 mark, while the pair currently trades near Fibonacci support levels at the 61.8 percent retracement of the 1.4555-1.5250 move at 1.4825. A break below said mark would likely precipitate a move towards subsequent spike-lows of 1.4639.
The US Dollar/Swiss Franc has shown little willingness to slow its ascent, and the pair now trades near 15-month highs at the 1.2213 mark. Said level marks the next plausible price ceiling, and a break higher would target subsequent spike-highs of 1.2314 and 21-month highs of 1.2464. Yet the USD/CHF remains in clearly overbought territory, and every point move higher leaves it at increased risk of a short-term retracement. The psychologically significant 1.2000 mark serves as the nearest price floor on any short-term USD/CHF declines.
The US Dollar/Canadian Dollar uptrend remains intact, and the pair recently cleared important resistance of the 61.8 percent Fibonacci retracement of 1.3015-1.1460 at 1.2420. Said USD/CAD resistance was the major stumbling block in the way of further rallies, and it now seems increasingly likely that the pair will go on to challenge recent multi-year highs of 1.3015. Former resistance now serves as immediate support at the aforementioned 1.2420 mark.
The Australian Dollar/US Dollar currency pair has broken out of its recent wedge formation, and the AUD/USD now eyes a challenge of recent lows near the 0.6000 mark. The break below the AUD/USD wedge formation likewise coincided with a break of the 61.8 percent Fibonacci retracement of the 0.6000-0.7010 move at 0.6390—confirming that a further move towards 0.6000 is likely. Previous support of 0.6390 is now resistance, and there remains little in the way of firm AUD/USD price floors until the aforementioned 0.6000 handle.
Further consolidation in the New Zealand Dollar/US Dollar pair leaves little directional bias for upcoming trade, as the pair trades almost exactly at the middle of its recent price channel. Overall momentum favors further NZD/USD declines, but the lack of conviction in recent price action suggests that the pair may continue to consolidate until further notice. Noteworthy support for the NZD/USD comes in at previous lows of 0.5348, and a recent test below said mark resulted in a reversal at April, 2003 lows of 0.5319. Resistance comes in at weekly highs of 0.5754.
The major currencies whipsawed in the Tuesday session, with the greenback recovering from earlier losses in New York trading. The dollar tumbled to lows against the euro and sterling at 1.2813 and 1.5248, respectively, before recovering by the afternoon session.
US economic reports released earlier in the session continue to confirm the dire conditions facing the economy. The consumer price index dropped by 1% in October, larger than expectations for a 0.8% decline from a flat reading in the previous month, marking its steepest decline on record. The headline annual CPI figure eased to 3.7%, down from 4.9% a year earlier. The core CPI figure also posted a 0.1% decline versus an increase of 0.1% in September and down to 2.2% from 2.5% in the previous year. The record declines in consumer prices again raises fears of deflation and highlights the quandary the FOMC currently finds itself in. Meanwhile, October housing starts posting a 4.5% decline compared with the 6.3% decline in September to 791k units and building permits plunged by 12% to 708k units.
The FOMC minutes from the October meeting revealed that economic developments could “force more rate cuts and review of liquidity facility adequacy”. The Fed said even after the 50-basis point rate cut, downside risks to growth remain and some officials acknowledged deflation risk posing a challenge as a result of the low Fed funds rate. The outlook in the minutes was largely bleak with the expectations for restrained growth in 2009 as a result of persistent credit market strains and housing woes. The FOMC also expects gloomy figures for 2009 with unemployment seen climbing to 7.1-7.6%, and GDP growth ranging from -0.2-1.1%. We anticipate a 50-basis point rate cut by the FOMC when it next meets to deliberate monetary policy on December 16th.
As the global financial crisis continues, there was carnage on the currency markets. The Japanese yen hit a 13-year high against the greenback and climbed 13% against the euro, its biggest weekly advance ever. The US dollar strengthened to multi-year highs against both sterling and the euro as traders abandoned the Europeans in their scramble to safety.
The trading week started quietly enough for eur/usd, with few signs of the bloodbath to come. Monday saw Fed chairman Ben Bernanke back plans for a second US stimulus package whilst testifying to the US House of Representatives and the White House followed up by saying it was open to the idea. The action started heating up on Tuesday. The Fed announced plans to prop up the US money markets with a further $540B. Tuesday trading saw oil fall towards $71 a barrel on fears of a global slowdown and under lined dollar support. Current sentiment is it that the States will weather a global recession far better than Europe. Europe’s situation is exacerbated by the current problems of a number of eastern and central European countries. The euro zone is vulnerable because of its strong investment and trading ties with these regions. Wednesday’s Wall Street plunge kept a downward pressure on the euro. However support held at 1.28. On Thursday, support was pushed down to 1.2750 before the euro recovered somewhat to test 1.30 by the end of US trading. Friday was the big day, of course. Falling Asian markets hastened the on-going flight to safety and the euro took a dive. As trading opened in Europe, euro zone PMIs came in much weaker than expected, confirming fears that the continent had slid into recession meaning that further rate cuts were on the cards. The euro plunged to 1.25. Oil prices had been on the slide all week and OPEC’s emergency meeting on Friday failed to stop the fall. Although the group announced plans to cut supply by 1.5M barrels a day, oil closed a touch above $64 a barrel, some 11% down on the week. The euro closed the week at around 1.26
Chart 1 EUR (hourly)
Sterling got hammered this week with the pain really kicking in on Tuesday evening after the governor of the bank of England, Mervyn King, finally admitted that the UK was in a recession. This came as no surprise to many in the light of the slump in the housing market, rising unemployment and falling consumer demand. Although the bank isn’t giving much away as regards future policy, it is looking increasingly likely the recent synchronized 50 bps cut is only the beginning of a BoE rate cutting cycle. The Sterling sell-off continued through the rest of the week and was given a helping hand when UK retail sales saw consumer spending fall by 0.4% in September. Friday morning’s global market melt-down and a much worse than expected UK GDP saw the pound crash some 1000 pips against the greenback until it recovered somewhat to close a little above 1.59.
The big news this week has to be the Fed’s interest rate announcement on Wednesday and the Fed is expected to cut 50bps to 1.00%. Other key data includes Wednesday’s Durable Goods Orders, Thursday’s GDP and regional manufacturing numbers on Tuesday and Friday. You can keep up to speed with the US housing market with Monday’s New Home Sales and Consumer Confidence is surveyed on Tuesday and Friday. Keep your eye out for Friday’s euro zone CPI data and key German numbers including the business climate on Monday, consumer climate on Tuesday and Retail Sales on Friday. It’s a quiet week in terms of UK data. We can expect the Nationwide House Price survey sometime this week, the CBI’s retail and wholesale numbers on Tuesday and UK consumer confidence on Friday.
The public speaking agenda is reasonably busy this week, see our economic calendar for listings.
Forecast
Last week saw the global economy slip into recession. We expect the dollar to continue to strengthen against the European currencies, however, be on the alert for snap rallies.
Current volatility accounts for this week’s wide ranges. Probably, the best strategy would be to sell on any corrections up and follow the trend down.
If EUR/USD breaks down 1.25, next target is 1.20. The pair will find resistance at 1.30.
If GBP/USD closes below 1.54, next target is 1.50, with resistance at 1.64.
If USD/JPY breaks through support at 90.90, the next target will be 86.
As the credit crunch is hitting hard the banking sector, the U.S. institutions are putting on the table various solutions to avoid a dominos effect. The U.S. dollar, in the mean time, could decline further, albeit some levels of support are emerging.
Rates eventually lower in the U.S., but not for now What a week! In an effort to avoid a dominos effect and trying to give some confidence to the shaky markets, the Federal Reserve and the Treasury department are putting on the financial table the highest cards in their hands. From guarantying a loan of USD 85 billion to AIG, the largest seller of credit fault swaps, to creating a counterpart that would absorb trouble assets from banks balance sheets, the U.S. institutions are making an enormous effort to get things going again. It will not be an easy process tough. So, the Fed announced that it would establish or increase new swap lines with major central banks by U.S. dollars 180 billion and some of the funding will come from various auctions conducted by the Treasury department. In effect, we are living a crucial moment in the long history of the world¡¯s economy. The cyclical turn of interest rates, from the bear market that began in 1980 to the current new bull market, has caught the most important institutions off guard.
The dollar extended losses against the majors in the early Thursday session, falling near the 1.47-level against the euro and relinquishing the 106-handle versus the yen. As Congress continues to scrutinize the $700 billion bailout plan proposed to calm the turmoil inflicting financial markets, traders remained concern about whether such a plan will be successful in staving off further rapid deterioration in economic fundamentals. Earlier in the session, President Bush warned that not passing the rescue plan would cost Americans much more in the long run given widespread loss of confidence and the current risk of major sectors of the financial system at risk of shutting down, ultimately resulting in a “long and painful recession”. He struck a somber tone, saying “without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold”.
Fed Chairman Bernanke offered a similar assessment when he testified to Congress on Wednesday, saying further delay in passing the plan would result in severely impacting “the overall performance of the US economy, perhaps over a period of years”. He added that “the intensification of financial stress in recent weeks, which will make leaders still more cautious about extending credit to households and business, could prove a significant drag on growth”. Nonetheless, despite the sense of urgency imparted by President Bush, Treasury Secretary Paulson and Fed Chairman Bernanke; lawmakers expressed skepticism over the staggering burden on taxpayers and questioned whether the bailout would be successful.
US economic reports return to focus in the session ahead, with markets focusing on August durable goods, initial jobless claims, and new home sales. The headline durable goods orders for August are seen reversing July’s 1.3% gain, falling by 1.6% while the excluding transportation figure is seen falling by 0.5% compared with an increase of 0.7% in the previous month. Meanwhile, August new home sales are seen little changed from the prior month, down slightly to 510k units, versus 515k units from July.
The U.S. dollar has been selling off on speculation that a government sponsored plan to buy illiquid mortgage assets from financial institutions will aggravate the budget deficit and make the U.S. tax payer more vulnerable to a slowdown in the U.S. economy. However, it seems we are seeing an overshoot of market sentiment against the U.S. dollar since it’s too early for market players to make conclusions regarding the true cost of this rescue plan. In fact, the U.S. government is going to hold both assets and liabilities and it’s even possible for them to make a substantial profit. It is difficult to make forecasts, particularly when the currency market is very volatile. Nonetheless, at DailyFX we expect the U.S. dollar to rebound sharply against the euro.
Fundamental Analysis Antonio Sousa, Chief Strategist for DailyFX
The U.S. dollar has been very weak against the world’s most heavily traded currencies. For instance, this Monday the U.S. dollar lost more than 3 big figures or 300 pips against the euro on speculation that a government sponsored plan to buy illiquid mortgage assets from financial institutions will aggravate the budget deficit and make the U.S. tax payer more vulnerable to a slowdown in the U.S. economy. However, it seems we are seeing an overshoot of market sentiment against the U.S. dollar since it’s too early for market players to make conclusions regarding the true cost of this rescue plan. In fact, the U.S. government is going to own both assets and liabilities and it’s even possible for the U.S. government to make a substantial profit if the housing market stabilizes in 2009. It is always difficult to make forecasts, particularly when currency market is very volatile. Nonetheless, at DailyFX we think that once investor’s confidence in the U.S. economy gets restored the U.S. dollar is likely to rebound. Indeed, a severe undervaluation of the U.S. dollar is now likely to lead to a substantial improvement of the U.S. Balance of Payments through continued strong export performance. In addition, a significant shift of interest rate expectations in favor of rate hikes by the Federal Reserve and rate cuts by the ECB is likely to help the U.S. dollar to rebound sharply against the euro.
Keeping a longer term perspective, especially when markets are as turbulent as they have been lately, helps to combat the emotional impulses that hinder most in their speculative activities. Since the 1970s (DM rates before 1999), the EURUSD has nearly tripled, but there have been large swings in both directions. A cycle is evident whereas the EURUSD falls for roughly half the time of the preceding advance. If this cycle holds, then a 4 or 5 year USD advance may be underway. Of course, no cycle holds forever. To get a better idea of future prospects, we’ll need to examine the structure of the advance from the 2000 low. EURUSD Weekly Bars 08-22-2008
The advance from the 2000 low counts well as a 5 wave impulsive. Following 5 waves, markets correct in the other direction in 3 waves. Weakness from 1.6040 is most likely the beginning of a 3 wave correction. An impulse usually experiences at least a 38.2% retracement. In this case, 1.2428 is the 38.2% level. The 50% at 1.1486 is defended by the 4th wave of one less degree (2005 low). Another sign that a larger EURUSD correction is underway is the position of weekly RSI, which recently dipped below 30. A dip below 30 indicates a rate of change extreme to the downside. Rate of change extremes typically occur in the beginning and middle of moves, not the end. This is why rate of change extremes rarely occur at the same time as price extremes and why divergence between price and rate of change / momentum oscillators warn of turns in price. For example, the highest RSI reading (14 weeks) during the entire 2000-2008 bull trend occurred in June 2002 and the lowest RSI reading during the decline from 1.3666-1.1640 occurred in May 2005 (the EURUSD did not bottom until November 2005).
Zooming in close and taking a look at the daily, it is clear that the decline from 1.6040 is in 5 waves, indicating that there is additional downside potential (there is a count that allows for the resumption of strength from here but we favor a larger decline…for reasons previously mentioned). Expect resistance in the 1.4919-1.52 zone. This is the 50%-61.8% of 1.6040-1.3877 as well as the former 4th wave. Be sure to view the Daily Technicals for short term pattern development.
The dollar sold off sharply against the majors at the start of the week amid a sharp run-up in crude oil prices and steep declines in the US equity bourses. Oil posted its largest single day advance, rallying by $16.37 to $120.92 per barrel, which was largely attributed to the expiration of October contracts. The US equity markets sold-off sharply as confidence in the government’s bailout plan and ability to steer the financial sector away from the current crisis wavered, sending the Dow Jones lower by 3.27% and the Nasdaq losing 4.17%. The greenback plunged by nearly 4-big figures against the euro from 1.4436 to above the 1.48-level while losing over 3-big figures versus the sterling from 1.8262 to 1.8588.
Uncertainty over the US government’s $700 billion rescue plan to purchase bad mortgage debts off banks’ balance sheets has triggered heightened volatility in the financial markets and raised fears on whether it will solve the current crisis. The plan is still pending Congressional approval, with additional details possibly not revealed until next week. The dollar will likely continue to bear the brunt of the sharp volatility and concerns of a potentially sharp spike in the deficit. Spot gold continues to trade above $900 per ounce, while crude oil was up by over $25 per barrel in the previous session.
EUR/USD trades near the 1.48-level, with interim resistance eyed at 1.4820, followed by 1.4865 and 1.49. Additional gains are seen at 1.4930, backed by 1.4960 and 1.50. On the downside, support will emerge at 1.4750, followed by 1.47 and 1.4660. Subsequent floors are seen at 1.4630, backed by 1.46 and 1.4550.
U.S. Dollar Trading (USD) had a very volatile day as weak US data was countered by a continued slide in commodity prices. US July Pending Home Sales came in weaker than expected at -3.2% vs. forecasts of -1%. Oil fell over $4 a barrel as OPEC signaled it wouldn’t cut production and Hurricane Ike looked likely to miss the Gulf. Equities were under severe pressure as Lehman Brothers fell by 30% on suggestions that South Korean regulators would scuttle its investment in the Banking firm. In the U.S. share markets, the NASDAQ was down 59 points (-2.64%) and the Dow Jones was down 280 points (-2.43%). Crude Oil closed down $0.11 ending the New York session at $106.34 per barrel. Looking Ahead, Crude Oil Inventories are expected at -4.6 Million.
The Euro (EUR) tested lows during the Asian session weak, US data and Stocks allowed the single currency to rally above 1.4200 before large losses in Oil pulled the pair lower. Heavy selling in the EUR/JPY also helped to cap gains. Overall the EUR/USD traded with a low of 1.4046 and a high of 1.4227 before closing the day at 1.4130 in the New York session.
The Japanese Yen (JPY) traded inline with equity movements as a recovery in Europe allowed a bounce off lows. Rumors swirled around Lehman Brothers in the US session causing heaving selling again as risk aversion spiked. AUD/JPY was hit especially hard heading towards the key 85 level. Overall the USDJPY traded with a low of 106.84 and a high of 108.45 before closing the day around 107 in the New York session. Looking ahead, August Leading Indicators and Current Account released today.
The Sterling (GBP) was able to recover from heavy selling on Monday, tracking the Euro higher and shrugging off poor data. July Manufacturing Production fell -0.2% vs. -0.1% expected and July Industrial Production fell -0.4% vs. -0.1% forecast. Overall the GDP/USD traded with a low of 1.7505 and a high of 1.7708 before closing the day at 1.7615 in the New York session. Looking ahead, July Trade Balance is expected at -7.5 Billion.
The Australian Dollar (AUD) initially bounced with the Euro but took the brunt of the Commodity sell off heading back towards the key .8000 level. July Retail Sales were mixed as a change in reporting made the number harder to digest and more volatile. The seasonally adjusted figure showed a jump of 1.4% much more than the 0.5% expected but was largely ignored. Overall the AUD/USD traded with a low of 0.8005 and a high of 0.8178 before closing the US session at 0.8010. Update AUD/USD breaks below .8000
Gold (XAU) was unable to gain on safe haven flows and USD weakness as Oil fell heavily dragging the precious metal to year lows early Wednesday. Overall trading with a low of USD$777.10 and high of USD$804 before ending the New York session at USD$778 an ounce.
TECHNICAL COMMENTARY
Currency
Sup 2
Sup 1
Spot
Res 1
Res 2
Euro – 1.4110
Initial support at 1.4047 (Sept 9 low) followed by 1.4015 (Oct 10 2007 low). Initial resistance is now located at 1.4201 (Sept 9 high) at followed by 1.4429 (Sept 8 high).
Yen – 107.15
Initial support is located at 106.68 (Sep 9 low) followed by 105.53 (Sep 5 low). Initial resistance is now at 108.43 (Sep 9 high) followed by 109.08 (Sept 8 high).
Pound – 1.7590
Initial support at 1.7472 (Sept 8 low) followed by 1.7371 (Apr 5, 2006 low). Initial resistance is now at 1.7669 (Sep 9 high) followed by 1.7976 (Sep 8 high).
Australian Dollar – 0.8030
Initial support at 0.7993 (Sept 10 low) followed by 0.7893 (Aug 20, 2007 low). Initial resistance is now at 0.8178 (Sept 9 High) followed by 0.8353 (Sept 8 high).
Gold – 770
Initial support at 768.60 (Oct 26, 2007 low) followed by 745.83 (Oct 22, 2007 low). Initial resistance is now at 804.98 (Sep 9 high) followed by 819 (Sep 5 high).
IMPORTANT NOTE: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Trade pairs, not currencies – Like any relationship, you have to know both sides. Success or failure in forex trading depends upon being right about both currencies and how they impact one another, not just one.
Knowledge is Power – When starting out trading forex online, it is essential that you understand the basics of this market if you want to make the most of your investments.
The main forex influencer is global news and events. For example, say an ECB statement is released on European interest rates which typically will cause a flurry of activity. Most newcomers react violently to news like this and close their positions and subsequently miss out on some of the best trading opportunities by waiting until the market calms down. The potential in the forex market is in the volatility, not in its tranquility.
Unambitious trading – Many new traders will place very tight orders in order to take very small profits. This is not a sustainable approach because although you may be profitable in the short run (if you are lucky), you risk losing in the longer term as you have to recover the difference between the bid and the ask price before you can make any profit and this is much more difficult when you make small trades than when you make larger ones.
Over-cautious trading – Like the trader who tries to take small incremental profits all the time, the trader who places tight stop losses with a retail forex broker is doomed. As we stated above, you have to give your position a fair chance to demonstrate its ability to produce. If you don’t place reasonable stop losses that allow your trade to do so, you will always end up undercutting yourself and losing a small piece of your deposit with every trade.
Independence – If you are new to forex, you will either decide to trade your own money or to have a broker trade it for you. So far, so good. But your risk of losing increases exponentially if you either of these two things:
Interfere with what your broker is doing on your behalf (as his strategy might require a long gestation period); Seek advice from too many sources – multiple input will only result in multiple losses. Take a position, ride with it and then analyse the outcome – by yourself, for yourself.
Tiny margins – Margin trading is one of the biggest advantages in trading forex as it allows you to trade amounts far larger than the total of your deposits. However, it can also be dangerous to novice traders as it can appeal to the greed factor that destroys many forex traders. The best guideline is to increase your leverage in line with your experience and success.
No strategy – The aim of making money is not a trading strategy. A strategy is your map for how you plan to make money. Your strategy details the approach you are going to take, which currencies you are going to trade and how you will manage your risk. Without a strategy, you may become one of the 90% of new traders that lose their money.
Trading Off-Peak Hours – Professional FX traders, option traders, and hedge funds posses a huge advantage over small retail traders during off-peak hours (between 2200 CET and 1000 CET) as they can hedge their positions and move them around when there is far small trade volume is going through (meaning their risk is smaller). The best advice for trading during off peak hours is simple – don’t.
The only way is up/down – When the market is on its way up, the market is on its way up. When the market is going down, the market is going down. That’s it. There are many systems which analyse past trends, but none that can accurately predict the future. But if you acknowledge to yourself that all that is happening at any time is that the market is simply moving, you'll be amazed at how hard it is to blame anyone else.
Trade on the news – Most of the really big market moves occur around news time. Trading volume is high and the moves are significant; this means there is no better time to trade than when news is released. This is when the big players adjust their positions and prices change resulting in a serious currency flow.
Exiting Trades – If you place a trade and it’s not working out for you, get out. Don’t compound your mistake by staying in and hoping for a reversal. If you’re in a winning trade, don’t talk yourself out of the position because you’re bored or want to relieve stress; stress is a natural part of trading; get used to it.
Don’t trade too short-term – If you are aiming to make less than 20 points profit, don’t undertake the trade. The spread you are trading on will make the odds against you far too high.
Don’t be smart – The most successful traders I know keep their trading simple. They don’t analyse all day or research historical trends and track web logs and their results are excellent.
Tops and Bottoms – There are no real “bargains” in trading foreign exchange. Trade in the direction the price is going in and you’re results will be almost guaranteed to improve.
Ignoring the technicals– Understanding whether the market is over-extended long or short is a key indicator of price action. Spikes occur in the market when it is moving all one way.
Emotional Trading – Without that all-important strategy, you’re trades essentially are thoughts only and thoughts are emotions and a very poor foundation for trading. When most of us are upset and emotional, we don’t tend to make the wisest decisions. Don’t let your emotions sway you.
Today’s Forex Trading Tips - A swing trade can best be described as a trading strategy that seeks to generate profits by holding trading positions for relatively short periods, generally from one day to one week. This strategy is similar to day trading but it uses a slightly longer time horizon.
The EUR/USD and the GBP/USD both have a swing trade setting up. These trades should materialize over the next two sessions and a possible close out on Friday.
Beginner Forex Trading: 2 Tips For The Beginner Forex Trader
With only 5% of all traders being profitable, it goes to say that becoming a good trader is no easy task. Throughout my trading career, I’ve learned many valuable lessons that have helped me tremendously in the way I think and trade. In this short article, I’ll share with you 2 important tips that I’ve personally applied to my own trading methodologies, and I hope you’ll be able to benefit from them as much as I have.
The focus of many traders is to make a profit, right? After all, that’s what we’re all here for, we trade to make money. But unfortunately, this obsession with making money often causes traders to ignore its effects on our minds and emotions. Entering into a losing trade may cause financial loss that can be recovered in the next trade or two. However, the psychological cost of fear and insecurity may take much more than a couple of trades to get over!
Our feelings and thoughts play a big part in how we trade, and if left unchecked, have the potential to lead us down the path of un-objective and unprofitable trading. Being aware of how you feel will help you identify the emotional patterns that you can improve upon.
Tip #2: Listen To The Market
This tip is easy to understand, but you won’t believe the number of traders that don’t follow it. In bear markets, sell the markets that show the most weakness. In bull markets, buy the markets that show the most strength. It’s not rocket science. And yet there are many traders today that try to outsmart the market. Always listen to the market, and never go against the trend, no matter what!
