Forex education, demo trading, and how to know when you are ready to trade with real money.
• Get smart.
If you are really serious about becoming a professional forex trader or about making consistent money in the forex market than it is imperative that you obtain an education on the forex market and how to effectively trade it. There are many great resources to learn from on the internet and elsewhere about forex and how to trade. A few of the more trusted forex educational resources on the web include the following:
http://www.babypips.com/, http://www.investopedia.com/, http://www.learntotradethemarket.com/, http://www.forexfactory.com/.
There are also some great forex trading mentors that are willing to educate you on how they successfully trade the forex market. These typically are subscription based services or educational packages that you have to pay for, however if you find one from a genuine and trusted source it will likely save you tons of money and time over trying to teach yourself and committing all the usual emotional trading mistakes.
• Demo trade.
Demo trading is a necessary stepping stone for all forex traders. Even if you have spent 6 months studying forex and how to trade it, you still should trade on a demo account until your forex strategy begins returning consistent results for you. Furthermore, many beginning traders erroneously jump head first into trading with real money and often commit many “stupid” mistakes as a result of not being familiar with their trading platform functionality. Successful demo trading of a minimum of 1 month, preferably 3 should be viewed as a requirement to long-term trading success.
• Plan your trades and trade your plan.
Having a defined and tangible trading plan is critical to long-term trading success. If you do not have a trading plan you will make emotional trading mistakes, plain and simple. And this is the same reason why most traders fail, because most traders are too lazy to spend the time and effort on making an effective trading plan or they simply think they don’t need one. Trading plans can be rather subjective and as a result many traders do not know where to begin when writing one and sometimes give up as a result of this. A good way to kick off your trading plan is simply to make an excel spreadsheet that includes all the trading parameters from each trade you enter, you can then form this trading journal into a complete trading plan. This will work to keep you accountable to yourself and give you a concrete way to track your progress and learn from your mistakes. Some of the parameters you will want to include in your trading journal include the following:
Entry date, Security (forex pair) being traded, Entry price, Exit price, Possible risk, Possible reward, Position size, Total profit / loss, Risk to reward ratio, Exit date.
This not an all inclusive list, but the above parameters should all be included in your trading journal, you should of course add to it as you see fit.
• Going live.
Finally, how do you really know if you are ready to start trading with real money in the forex market? Well, there is not concrete answer to this question unfortunately, but typically there are a number of factors that are present when you are truly ready to go live.
Success on a demo account is typically a sign that you at least have an effective trading strategy that gives you a truly competitive edge in the market. If you can maintain relatively consist profits for a period of 3 months on a demo account than you likely are ready to try your hand at live forex trading. However, keep in mind that demo trading involves almost no emotion because there is no real money on the line. Very often traders experience success as demo traders but then fail to find the same success once they begin trading with real money. This is because trading success is all about managing your emotions and your risk effectively every single day, and there simply is no risk or emotion when you are not trading with real money. Demo trading is still very critical and useful for getting down your forex trading strategy and trading plan and making sure all the kinks are worked out before you go live, just don’t use it as a crutch.
We hope you have learned many important insights from this forex strategies mini-course and best of luck to you in your forex studies and trading!! By:http://www.forextradingstrategies.org
Tuesday, April 12, 2011
Part 4: K.I.S.S. – Keep It Simple Stupid Forex trading: why simple strategies work
K.I.S.S. – Keep It Simple Stupid trading: why simple strategies work and who to trust.
• The search for the holy trading grail.
Ask any professional trader about their trading method and you might be very surprised to learn how simple it is to understand and implement. This is because traders who consistently make money in the forex market have figured out that overly complicated trading methods only work against them and make securing consistent forex profits all the more difficult. When you cloud your trading screen up with numerous different lagging indicators that all tell you something different, or rely solely on the signals from a piece of trading software, you are doing more work than is necessary to make money in the markets. When you enter into this zone of believing that “more is better” in regards to your forex trading strategy, you essentially enter the zone of cyclical trading failure. The reason for this is because traders who believe more is better in forex are always in a search for that next best trading system, because they gave up on the last one after becoming frustrated and confused. This notion of believing that if you JUST had that ONE great trading system you would make consistent money in the markets is what causes traders to drop thousands of dollars on different trading strategies that promise the world but deliver only frustration and losses.
• What to look for in a simple trading strategy and who to trust.
A simple trading strategy will not be heavy on lagging indicators. Certain lagging indicators can be very useful, these include moving averages and a couple others, but by and large most of them are simply a waste of time due to the fact that they lag price and make it more confusing to interpret. What you are looking at when you try to interpret price direction from a lagging indicator is simply what price did in the past in a format that is more difficult to decipher than simply looking at a raw price chart.
Simple trading strategies involve basic technical analysis chart reading skills like price pattern recognition. A good person to learn from on this topic is Martin Pring, his book “Pring on Price Patterns” is the virtual bible of price pattern education. Mr. Pring teaches all aspects of price pattern recognition in this book, everything from how to identify trends to correctly implementing a head and shoulders pattern. The concepts in this book make use of simple chart reading skills that have been used effectively in the markets for centuries.
If you wish to learn how to trade off of Japanese candlestick patterns than Steve Nison is your man. Mr. Nison introduced the concept of Japanese candlesticks to the Western world and has written many great books on how to interpret candlesticks and what the various candlestick patterns are. Forex candlestick trading strategies can be a great tool to augment your other trading strategies or it can stand alone as its own simple yet effective trading strategy.
For a more hybrid approach to simple forex trading strategies you may want to check out Nial Fuller. Mr. Fuller’s take on trading the markets is known as price action setup trading. He combines elements of simple price patterns that Martin Pring teaches along with candlestick strategies. Nial Fuller’s trading strategies are taught in a very effective system of videos, articles, and a comprehensive trading instructional course. His simple price action trading strategies are a unique take on a time-tested method that even includes some proprietary price action setups and ideas. By:http://www.forextradingstrategies.org
• The search for the holy trading grail.
Ask any professional trader about their trading method and you might be very surprised to learn how simple it is to understand and implement. This is because traders who consistently make money in the forex market have figured out that overly complicated trading methods only work against them and make securing consistent forex profits all the more difficult. When you cloud your trading screen up with numerous different lagging indicators that all tell you something different, or rely solely on the signals from a piece of trading software, you are doing more work than is necessary to make money in the markets. When you enter into this zone of believing that “more is better” in regards to your forex trading strategy, you essentially enter the zone of cyclical trading failure. The reason for this is because traders who believe more is better in forex are always in a search for that next best trading system, because they gave up on the last one after becoming frustrated and confused. This notion of believing that if you JUST had that ONE great trading system you would make consistent money in the markets is what causes traders to drop thousands of dollars on different trading strategies that promise the world but deliver only frustration and losses.
• What to look for in a simple trading strategy and who to trust.
A simple trading strategy will not be heavy on lagging indicators. Certain lagging indicators can be very useful, these include moving averages and a couple others, but by and large most of them are simply a waste of time due to the fact that they lag price and make it more confusing to interpret. What you are looking at when you try to interpret price direction from a lagging indicator is simply what price did in the past in a format that is more difficult to decipher than simply looking at a raw price chart.
Simple trading strategies involve basic technical analysis chart reading skills like price pattern recognition. A good person to learn from on this topic is Martin Pring, his book “Pring on Price Patterns” is the virtual bible of price pattern education. Mr. Pring teaches all aspects of price pattern recognition in this book, everything from how to identify trends to correctly implementing a head and shoulders pattern. The concepts in this book make use of simple chart reading skills that have been used effectively in the markets for centuries.
If you wish to learn how to trade off of Japanese candlestick patterns than Steve Nison is your man. Mr. Nison introduced the concept of Japanese candlesticks to the Western world and has written many great books on how to interpret candlesticks and what the various candlestick patterns are. Forex candlestick trading strategies can be a great tool to augment your other trading strategies or it can stand alone as its own simple yet effective trading strategy.
For a more hybrid approach to simple forex trading strategies you may want to check out Nial Fuller. Mr. Fuller’s take on trading the markets is known as price action setup trading. He combines elements of simple price patterns that Martin Pring teaches along with candlestick strategies. Nial Fuller’s trading strategies are taught in a very effective system of videos, articles, and a comprehensive trading instructional course. His simple price action trading strategies are a unique take on a time-tested method that even includes some proprietary price action setups and ideas. By:http://www.forextradingstrategies.org
PART 3: What time frames are best to trade forex?
What time frames are best to trade?
Beginning forex traders often become inundated with technical and fundamental information over-load and often experience analysis-paralysis early on in their trading career as a result. One of the related problems of this analysis-paralysis involves not knowing what time frame(s) is the most effective too trade off of. Many traders get caught up looking at lower time frames because they believe they will spot more opportunities or somehow have more control over the forex market by doing so. The problem with going down to lower time frames such as 30 minute charts and below is that there is almost too much market “noise” to make an accurate trading decision. A general rule of thumb is that the higher the time frame the more accurate the trading signals become. For example, the same trading signal on a 1 hour chart and a weekly chart will have a higher probability on average of working out on the weekly chart over the 1 hour chart. So, with that being said, what are some factors to consider when deciding which time frame is best for you to trade?
• What’s your daily schedule like?
People with full-time jobs or that have very busy schedules are much more likely to find success trading longer time frames and simple forex trading strategies. Typically, people in this situation will want to concentrate on the daily chart time frames and above. This means you only need to look at your charts 1 time a day maximum. Trading in this manner can be very low-stress and more often than not traders find they are more profitable the less they interfere with their trades and stare at their charts. If you do not want to become a full-time forex trader but instead wish simply to diversify your investments or supplement your income, you will want to concentrate on daily, weekly, monthly, and yearly chart setups.
Those traders who are aspiring to become professional forex traders may wish to use the 4 hour, 1 hour charts or lower to time their entry and exit decisions more precisely. However, keep in mind that going down in time frame often brings with it a higher likely hood of inducing emotional trading mistakes such as those brought on by fear and greed. Do not attempt to day trade the forex market until you have become proficient at higher-time frame trading and have successfully built up the funds in your trading account. By:http://www.forextradingstrategies.org
Beginning forex traders often become inundated with technical and fundamental information over-load and often experience analysis-paralysis early on in their trading career as a result. One of the related problems of this analysis-paralysis involves not knowing what time frame(s) is the most effective too trade off of. Many traders get caught up looking at lower time frames because they believe they will spot more opportunities or somehow have more control over the forex market by doing so. The problem with going down to lower time frames such as 30 minute charts and below is that there is almost too much market “noise” to make an accurate trading decision. A general rule of thumb is that the higher the time frame the more accurate the trading signals become. For example, the same trading signal on a 1 hour chart and a weekly chart will have a higher probability on average of working out on the weekly chart over the 1 hour chart. So, with that being said, what are some factors to consider when deciding which time frame is best for you to trade?
• What’s your daily schedule like?
People with full-time jobs or that have very busy schedules are much more likely to find success trading longer time frames and simple forex trading strategies. Typically, people in this situation will want to concentrate on the daily chart time frames and above. This means you only need to look at your charts 1 time a day maximum. Trading in this manner can be very low-stress and more often than not traders find they are more profitable the less they interfere with their trades and stare at their charts. If you do not want to become a full-time forex trader but instead wish simply to diversify your investments or supplement your income, you will want to concentrate on daily, weekly, monthly, and yearly chart setups.
Those traders who are aspiring to become professional forex traders may wish to use the 4 hour, 1 hour charts or lower to time their entry and exit decisions more precisely. However, keep in mind that going down in time frame often brings with it a higher likely hood of inducing emotional trading mistakes such as those brought on by fear and greed. Do not attempt to day trade the forex market until you have become proficient at higher-time frame trading and have successfully built up the funds in your trading account. By:http://www.forextradingstrategies.org
PART 2: What forex strategies tend to be the most effective and why?
What forex strategies tend to be the most effective and why?
While there can be large differences between effective forex trading strategies, let’s discuss a few common characteristics that all effective forex strategies share.
• Effective forex strategies do not need to be expensive to learn
Effective forex strategies can seem elusive to the beginning forex trader, however, it is common knowledge among professional traders that there are many different ways to successfully trade the market and the specific strategy you use is not nearly as important as learning to manage your risk correctly and maintain an objective mindset. So the very fact that so many websites are charging thousands of dollars for various trading strategies and systems means that traders who do not know any better are very likely to get scammed out of their hard earned money. There are certainly effective forex strategies that are priced fairly and more than worth the purchase price. However, be very weary of getting mixed up in any of the thousands of forex trading “robot” software or lagging indicator based systems that claim to make you rich over night if you just buy their super-expensive trading system. You can learn much information about successful trading for free on the internet and there are also many excellent forex mentors to learn the ropes from as well.
• Effective forex strategies do not need to be cutting-edge or new.
Humans have been speculating and investing in financial securities since the 1700’s when Japanese rice farmers used candlestick charts to record the price movement of rice and profit off its movement. While trading the financial markets has certainly come a long way since then, the basic concepts remain the same. Markets are driven on human belief about a security’s price, these beliefs are reflected on a price chart and able to be interpreted on them as well. From the Japanese rice traders of the 1700’s to famed traders like Jesse Livermore and George Soros, traders who understand that much money can be made by implementing simple price interpretation concepts and monitoring one’s emotions and risk, have been profiting for centuries. Most new or “cutting-edge” trading software programs or trading systems designed around lagging indicators and “rules” for how to use them, are nothing more than sales pitches by savvy internet marketers. Don’t look to re-invent the trading wheel, stick to strategies that have worked for other traders and learn the basics, concentrate the rest of your efforts on controlling your emotions and your risk.
• Effective forex strategies are produced by seasoned professional forex traders.
Professional forex traders are hard to find. This is because about 90-95% of all traders that attempt to find success in the markets fail at it. So this leaves a very small percentage of traders that actually figure out how to make trading the forex market their full-time career, and an even smaller percentage that are willing to take on the task of teaching other people how to trade, likely because most pro traders are too busy enjoying the spoils that accompany a successful career as a forex trader. However, there are indeed a handful of professional forex traders who also happen to be very gifted teachers. If you do decide to learn a forex strategy from someone or buy a trading course or system from a website, make sure the person you are learning from is the real-deal, meaning they walk their talk. If you can’t find any evidence on a website which is selling a forex educational product that its creator(s) is a professional trader, then don’t buy it or use it. Just as you must learn from a seasoned pro in ANY other profession, so you must do this in the world of forex, in fact it is probably more important that you learn forex strategies from a professional trader than it is for many other professions. By:http://www.forextradingstrategies.org
While there can be large differences between effective forex trading strategies, let’s discuss a few common characteristics that all effective forex strategies share.
• Effective forex strategies do not need to be expensive to learn
Effective forex strategies can seem elusive to the beginning forex trader, however, it is common knowledge among professional traders that there are many different ways to successfully trade the market and the specific strategy you use is not nearly as important as learning to manage your risk correctly and maintain an objective mindset. So the very fact that so many websites are charging thousands of dollars for various trading strategies and systems means that traders who do not know any better are very likely to get scammed out of their hard earned money. There are certainly effective forex strategies that are priced fairly and more than worth the purchase price. However, be very weary of getting mixed up in any of the thousands of forex trading “robot” software or lagging indicator based systems that claim to make you rich over night if you just buy their super-expensive trading system. You can learn much information about successful trading for free on the internet and there are also many excellent forex mentors to learn the ropes from as well.
• Effective forex strategies do not need to be cutting-edge or new.
Humans have been speculating and investing in financial securities since the 1700’s when Japanese rice farmers used candlestick charts to record the price movement of rice and profit off its movement. While trading the financial markets has certainly come a long way since then, the basic concepts remain the same. Markets are driven on human belief about a security’s price, these beliefs are reflected on a price chart and able to be interpreted on them as well. From the Japanese rice traders of the 1700’s to famed traders like Jesse Livermore and George Soros, traders who understand that much money can be made by implementing simple price interpretation concepts and monitoring one’s emotions and risk, have been profiting for centuries. Most new or “cutting-edge” trading software programs or trading systems designed around lagging indicators and “rules” for how to use them, are nothing more than sales pitches by savvy internet marketers. Don’t look to re-invent the trading wheel, stick to strategies that have worked for other traders and learn the basics, concentrate the rest of your efforts on controlling your emotions and your risk.
• Effective forex strategies are produced by seasoned professional forex traders.
Professional forex traders are hard to find. This is because about 90-95% of all traders that attempt to find success in the markets fail at it. So this leaves a very small percentage of traders that actually figure out how to make trading the forex market their full-time career, and an even smaller percentage that are willing to take on the task of teaching other people how to trade, likely because most pro traders are too busy enjoying the spoils that accompany a successful career as a forex trader. However, there are indeed a handful of professional forex traders who also happen to be very gifted teachers. If you do decide to learn a forex strategy from someone or buy a trading course or system from a website, make sure the person you are learning from is the real-deal, meaning they walk their talk. If you can’t find any evidence on a website which is selling a forex educational product that its creator(s) is a professional trader, then don’t buy it or use it. Just as you must learn from a seasoned pro in ANY other profession, so you must do this in the world of forex, in fact it is probably more important that you learn forex strategies from a professional trader than it is for many other professions. By:http://www.forextradingstrategies.org
PART 1: What kind of strategies can be implemented to trade the forex market?
What kind of strategies can be implemented to trade the forex market?
There are many different types of forex strategies that traders can use to successfully trade the market. However, before you learn about specific trading strategies it is crucial to have a solid back ground in the building blocks of ALL forex strategies. All forex strategies are either based upon technical analysis, fundamental analysis, or a combination of the two. In order to figure out which forex trading strategy is best for you, you must first make sure that you understand what technical analysis is and what fundamental analysis is and how they both can impact your forex trading results.
• Technical analysis
Technical analysis is the art and skill of using price charts to make forex trading entry and or exit decisions. True price chart technicians make all of their trading decisions off of price charts alone and do not combine any other factors when trading the market. The logic behind this behaviour is the belief amongst charting technicians that all relevant and pertinent information regarding a security’s possible direction is reflected through and included in its price movement. Traders and investors who trade solely on technical analysis make all of their trading decisions by using price charts either “naked” or with any number of indicators over-laid on top of a security’s “naked” price chart.
• What is “naked” trading?
The term trading “naked” refers to using a price chart without any indicators on it to trade the market with. This form of trading is often referred to as “price action trading”, because traders using this form of technical analysis make their trading decisions by learning to analyse pure price movement or action, rather than trying to analyse an indicator’s interpretation of that price movement. While some traders do have success correctly implementing certain lagging indicators into their trading, many traders swear by the simplicity and accuracy of learning to analyse a “naked” or indicator-free price chart. There is a certain amount of discretion involved with price action trading and it can take some time to master, this is why many traders are driven towards more robotic type trading systems that do not require any discretion or practice on their behalf. However, for interested parties, price action trading can be one of the most accurate, fun, and stress-free forex trading strategies when mastered and implemented correctly.
• Fundamental analysis
Fundamental analysis is the interpretation of changing economic policies, economic reports, and other national or international economic variables to make one’s forex trading decisions. It is a good idea to have a basic understanding of WHAT causes the forex market to move, so understanding what the various economic reports mean is important to the well-rounded trader. However, it might be MORE important to simply be aware of the possible volatility that could be induced by any given economic report as well as the specific time it is being released. Making all of one’s trading decisions purely on fundamental analysis is a near futile endeavour, this is because everyone trading the market might have a slightly different interpretation of HOW a certain economic report or policy change may or may not affect the forex market.
Furthermore, people’s reactions to economic reports sometimes do not correlate with what the economic report implies, therefore, it is best to have a basic awareness of what the various economic reports mean and when they come out, but any attempt to predict HOW a specific economic report will effect a certain forex currency pair is not going to do you much good unless you can somehow interview every other forex trader in the world and ask them what effect they think the report will have. This is where the saying “buy the rumour, sell the fact” came from, because often times the anticipation leading up to a certain economic news release will cause the majority of the price movement, then once the news is actually released there is nothing new to anticipate, so price will often then go the opposite direction. By:http://www.forextradingstrategies.org
There are many different types of forex strategies that traders can use to successfully trade the market. However, before you learn about specific trading strategies it is crucial to have a solid back ground in the building blocks of ALL forex strategies. All forex strategies are either based upon technical analysis, fundamental analysis, or a combination of the two. In order to figure out which forex trading strategy is best for you, you must first make sure that you understand what technical analysis is and what fundamental analysis is and how they both can impact your forex trading results.
• Technical analysis
Technical analysis is the art and skill of using price charts to make forex trading entry and or exit decisions. True price chart technicians make all of their trading decisions off of price charts alone and do not combine any other factors when trading the market. The logic behind this behaviour is the belief amongst charting technicians that all relevant and pertinent information regarding a security’s possible direction is reflected through and included in its price movement. Traders and investors who trade solely on technical analysis make all of their trading decisions by using price charts either “naked” or with any number of indicators over-laid on top of a security’s “naked” price chart.
• What is “naked” trading?
The term trading “naked” refers to using a price chart without any indicators on it to trade the market with. This form of trading is often referred to as “price action trading”, because traders using this form of technical analysis make their trading decisions by learning to analyse pure price movement or action, rather than trying to analyse an indicator’s interpretation of that price movement. While some traders do have success correctly implementing certain lagging indicators into their trading, many traders swear by the simplicity and accuracy of learning to analyse a “naked” or indicator-free price chart. There is a certain amount of discretion involved with price action trading and it can take some time to master, this is why many traders are driven towards more robotic type trading systems that do not require any discretion or practice on their behalf. However, for interested parties, price action trading can be one of the most accurate, fun, and stress-free forex trading strategies when mastered and implemented correctly.
• Fundamental analysis
Fundamental analysis is the interpretation of changing economic policies, economic reports, and other national or international economic variables to make one’s forex trading decisions. It is a good idea to have a basic understanding of WHAT causes the forex market to move, so understanding what the various economic reports mean is important to the well-rounded trader. However, it might be MORE important to simply be aware of the possible volatility that could be induced by any given economic report as well as the specific time it is being released. Making all of one’s trading decisions purely on fundamental analysis is a near futile endeavour, this is because everyone trading the market might have a slightly different interpretation of HOW a certain economic report or policy change may or may not affect the forex market.
Furthermore, people’s reactions to economic reports sometimes do not correlate with what the economic report implies, therefore, it is best to have a basic awareness of what the various economic reports mean and when they come out, but any attempt to predict HOW a specific economic report will effect a certain forex currency pair is not going to do you much good unless you can somehow interview every other forex trader in the world and ask them what effect they think the report will have. This is where the saying “buy the rumour, sell the fact” came from, because often times the anticipation leading up to a certain economic news release will cause the majority of the price movement, then once the news is actually released there is nothing new to anticipate, so price will often then go the opposite direction. By:http://www.forextradingstrategies.org
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