When it comes to trading, one of the most neglected subjects are those dealing with trading psychology. Most traders spend days, months and even years trying to find the right system. But having a system is just part of the game. Don't get me wrong, it is very important to have a system that perfectly suits the trader, but it is as important as having a money management plan, or to understand all psychology barriers that may affect the trader decisions and other issues.
Most Forex trading courses and Forex training programs forget about these important aspects of trading. But the truth is that in order to succeed in this business, there must be a complete equilibrium between all important aspects of trading.
In the trading...
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Articles
When discussing market analysis, we generally consider the two contending schools of thought to be Fundamental Analysis and Technical Analysis. However, in the early 1970's, there emerged a third view known as the "Random Walk Theory", which was not so much an approach to market analysis as it was a critique of the other two methods.
The Random Walk Theory is the popular name for a market model known in academic circles as Efficient Market Theory. This model of the market contends that prices are "efficient" in the sense that all known information and market expectations are immediately factored into the market through the movement of prices. But these price movements are caused by so many different factors that they become random in...
As the online Forex trading market becomes increasingly saturated and the choice of brokers becomes wider, the decision of which broker to run with becomes increasingly important for the trader. Although the majority of brokers provide the same basic trading platform, there can be a vast difference in what they offer their clients, both in terms of trading conditions as well as customer support. By simply visiting a company's homepage it may be hard to separate the second-rate firms from the professionals, therefore this article will examine the main parameters that should be taken into consideration before creating an account and depositing.
Account type
The decision of which type of account to open will most likely depend on the...
First of all, congratulations to everyone who made money on the recent Japanese Yen rally. One of my students caught some nice chunks of the recent move lower in USD/JPY, earning 70 pips and 85 pips on successive trades. Way to go, M!
The recent strength in the Japanese Yen created some terrific moves, but we should keep things in perspective - the gains made during the recent move lower in NZD/JPY (New Zealand Dollar/Japanese Yen), GBP/JPY (Great Britain Pound/Japanese Yen), and EUR/JPY (Euro/Japanese Yen) and other Yen pairs are nothing compared to the huge profits earned by long-term traders who were short the Japanese Yen when these pairs were rallying. For a case in point, have a look at the daily chart of NZD/JPY (see figure 1)...
Here we take a brief look at how the forex market began and how it has evolved over the years.
The foreign exchange, FX or forex market, as we know it has been evolving for hundreds of years. It is believed that the concept of banking first arose in ancient Mesopotamian times. Royal palaces and temples were used to store harvested commodities which in turn created the need for receipts. These receipts were used for transfers to those who made the deposits and to third parties. The very same banking and receipt business was also used in ancient Egypt. Receipts were often used to settle debts with priests, tax collectors and exchanged with traders. It wasn't until the early forms of coinage came about that we saw the first real currency...
Introduction
The importance of well-placed stop orders to a FOREX trader cannot be over emphasized. The margin percentage required in a typical FOREX account is so small that a fully leveraged trader could easily lose a substantial amount of their net worth from a single position if it moves too far in the wrong direction. The name of the game is risk control and the key tool for protecting your account from substantial losses is the stop order.
That being said however, I do know some traders who claim never to place stops. Usually the rationale for this is that their trades are very short term (on the order of just a few minutes) and they are watching the market during the entire trade, finger twitching on the exit trigger ready to...
Shorting the Japanese Yen has been one of the best and easiest Forex trades over the past six months. Japan's anemic benchmark interest rate of 0.25% makes it an easy target for the "carry trade", allowing Yen bears to collect interest on their trades. Banks, hedge funds and other traders have shorted JPY vs. higher yielding currencies such as the Great Britain Pound, the New Zealand Dollar, the Australian Dollar, and the Euro to take advantage of this interest rate differential. This has ignited a downtrend in the Yen, which has been exacerbated as these institutional traders add to their short positions. Fears that the Bank of Japan would embark on a campaign of interest rate hikes, which would make the carry trade less viable, has...
A brief look at the different ways in which an FX trader can diversify within their account.
While there are an unlimited number of publications covering the advantages of portfolio diversification, few of them explore the possibilities of trading Forex along with typical stock, bond and real estate investments. It is even more rare to find theory on diversifying within a FX portfolio. Although fund managers are very aware of the importance of diversity, speculators often overlook its value. As we have all come to realize, you can't expect consistent success by being a conformist.
As all currency traders know, the Forex market is a great way to hedge the economic risk of a pool of investments. Studies have even suggested that the...
In this lesson Bo Yoder looks at the current forex markets and what happens when the trend ends and consolidation follows.
Click here to view the video (will appear in new window).
You've probably seen it mentioned in various trading forums. It may have even happened to you a few times. It's enough to make your head explode. What is it? It's called Stop Hunting.
Here's a typical trading situation. You're convinced that the USD/JPY is heading up. You've entered a long position at 123.40 and you've set your stop at 123.05, slightly below an obvious double bottom. You set your initial target at 124.50, giving you more than a 3:1 ratio of reward to risk. Unfortunately, the trade begins to go against you and breaks down through the support. Your stop is hit and you're out of the trade. You're sure glad you had that stop in place! Who knows how far it could drop now that it's broken that support, right?
Wrong. Guess...
Do you need to catch the initial move to trade a breakout, or are there other ways of trading it? In this article we look at an alternative method using Fibonacci retracements.
When markets move, particularly in Forex, they move fast. We all have witnessed breakouts and have had the occasion to lament a trade that got away. The beginning trader sees breakouts as a way of riding a strong wave of volatility and providing a quick profit. The problem with the strategy of playing a breakout is that breakouts are technically unstable. They present difficult questions to answer, such as: How long will it last? Especially when there is an absence of news, the question of what caused it is difficult to determine. The better way to trade a...
Today there are many scams involving forex and a great number of us will have seen emails or websites promising untold riches. So what are the main points to look for in spotting a scam?
In recent years, investors have witnessed increased number of investment opportunities and offerings. While the complexity and success of these investment products vary, technological innovation has made the Forex market one of the fastest growth areas. Many of the leading Forex brokers reported up to 500% rise in the number of new retail customers. However, the growth of the Forex market has been accompanied by a sharp rise in foreign currency trading scams.
Many of these Forex scams are promoted on the radio, television, newspapers and the Internet...
Pivot points can be a useful tool when trading the forex enabling the trader to see where the price is in relation to the previous market movements.
It is useful to have a map and be able to see where the price is relative to previous market action. This way we can see how is the sentiment of traders and investors at any given moment, it also gives us a general idea of where the market is heading during the day. This information can help us decide which way to trade.
Pivot points, a technique developed by floor traders, help us see where the price is relative to previous market action.
As a definition, a pivot point is a turning point or condition. The same applies to the Forex market, the pivot point is a level in which the...
A detailed step by step guide of how to trade a falling wedge has been illustrated in a free video, to view it please click on the following link
http://www.4x4u.net/review/51/51.html
Key aspects of a falling wedge are summarised as follows;
A Wedge formation is similar to a triangle in appearance in that they have converging trendlines. A falling wedge is generally a bullish chart pattern that begins wide at the top and contracts as the prices move lower. This pattern has a series of lower highs and lower lows.
The following chart on EURGBP (Nov2006) illustrates a good example of a falling wedge, and this was covered live at one of my live Webinar enabling traders to pull the trigger, thus far it has been a very good profitable...
In the Forex market, sometimes you get the fruit and sometimes you get trapped and shot. Why?
A friend of mine volunteers on a regular basis to rid his neighborhood of rodents and animal riff-raff: the woodchucks, groundhogs, and possums that eat up gardens, attack family pets, and so on. He sets a trap with ripe fruit or tuna fish. The animal enters the trap for the food. If the animal can't find its way out, it is eventually shot and buried.
Possums are relatively easy to catch. They go for the fruit, they get caught, and then, when the trapper approaches the trap, the possum simply plays dead. It plays dead because that's the best defense mechanism that it has.
A woodchuck is tougher to trap. A big one might enter the trap, eat...
The emerging market meltdown that occurred between May 12 and June 13, 2006, had an impact on currencies, the carry trade and incredible growth in derivatives over the last decade, as described in Part 1.
In summary, here are the issues we will be examining in part 2.
An index that has been uncannily accurate in providing advance warning of emerging market trouble and what it is saying now.
What the yield curve inversion for the third time in the last six months means. How accurate has it been in the past in warning of a pending slow down?
Based on the importance that real estate and related construction activities play in economies around the globe, what impact will a real estate correction have?
Real wage growth, a principal...
A look at the key features to be considered when day-trading forex.
Until recent years, the opportunity to put on a trade was governed by the cycle of day and night. But a unique characteristic of Forex trading is its round the clock sequence of trading. Starting Sunday when the sun rises in Asia, until Friday late afternoon, when the New York markets close, Forex trading is available. So the question arises, what is a Day trade in Forex, if technically Forex is a continuous week of trading? To answer that question we do not need to delve into the nature of human circadian biorhythms. One has to be arbitrary. We can effectively define a Forex day trade as a trade that is completed during the waking hours of a trader. A day trade might...
A look a the current market correction - the 'canary correction' and what may have caused it.
When the Morgan Stanley Emerging Markets Index Exchange Traded Fund (EEM) hit an all-time high of $111.10 on May 9, 2006, it marked a meteoric rise from its humble launch price of $33.37 a little more than three years before. Volume had also grown exponentially from a mere 36,300 shares on April 11, 2003, to an average daily exchange of more than 3.5 million shares by early May 2006.
caption: Figure 1 - The Morgan Stanley MSCI Emerging Market ETF (EEM) dropped sharply between May 9 and June 13, 2006. May registered the biggest monthly decline in the history of the index, and the drop was only half over.
Chart provided by www.Genesisft.com...
What is the correlation between different FX pairs and how can it be measured?
As a Forex trader, it is necessary to be constantly aware of the characteristics of the currency market. Without knowledge of the basic tendencies of any given currency pair, traders are exposing themselves to excessive amounts of risk. One of the most beneficial pieces of knowledge for a Forex trader to be armed with is the historical correlation between currencies. Understanding this relationship will not only allow traders to hedge positions, but it may also give them an edge when it comes to entering a trade.
The term correlation is used to describe the relationship between two related variables and can be expressed as an integer between +1 and -1...
As is the case with other markets such as commodities, forex demonstrates patterns of "seasonal" behavior which can be traded. These calendar patterns vary from pair to pair due to the dynamics of the currencies involved. In this article, the Yen (JPY) is the focal point, though there are similar patterns of action in other ares of the foreign exchange market.
Monthly Patterns
If one first takes a look at the market from a monthly perspective, it can be seen that USD/JPY and the JPY-based crosses have months in which they demonstrate clear tendencies. The figures below outline this. The graphs takesa month-by-month look at USD/JPY since 1999 (seven years total), which encapsulates the time since the launch of the Euro, an important...
Many times in the past I've written about the need to adapt, the need to be able to change your behavior relative to the market because the markets are ever changing.
I've stated that mechanical systems may be workable, but for only a short time relative to the life of markets. You must learn to trade what you see and to understand what you see on a chart.
When I first began trading there was no such things as futures contracts for foreign currencies. Why didn't they exist? Because there was no need for them! In the 1970s all that changed when the US Dollar went off the gold standard and began to float against other currencies. Following that, the Chicago Mercantile Exchange began to create currency futures to provide a place...
What is gamma?
An option's price changes with fluctuations in several factors such as spot price, volatility, interest rates and time. Delta is a measure of the change in option premium with respect to a change in the underlying, or spot, price. Gamma represents the change in delta for a given change in the spot rate.
In trading terms, players become long gamma when they buy standard puts or calls, and short gamma when they sell them. When commentators speak of the entire market being long or short gamma, they usually are referring to market-makers in the interbank market.
How market makers view gamma
Let's consider how market makers view gamma. Generally, options market makers seek to be delta-neutral - that is, they want to...
The Ichimoku Kinkou-Hyo is a technical study that was developed by a Tokyo newspaper writer, Goichi Hosoda, before World War II as a self-standing forecasting method for all financial markets. The name is a bit of a mouth-full, so many traders only call it Ichimoku, but in loose translation the full name means "One-look at the equilibrium prices." The name originated with Hosoda's pen name "Ichimoku Sanjin," which means a glance of a mountain man. This technical study consists of gauging midpoints of historical highs and lows at different lengths of time and several time lengths matched those used in the MACD's moving averages. Ichimoku provides another method of analyzing trends and brings additional points to retracement/extension...
In this streaming video, Phil provides the outline of a trading strategy he uses regularly for trading the forex market.
In this example, he demonstrates a simple break-out strategy on the Eur/JPY pair using 15 minute charts, but his interpretation of the charts, using price action and candlestick analysis, can be applied to many other price patterns across the currency pairs.
He details his precise method for identifying and trading this set-up, including:
when the set-up is most likely to appear
why you should avoid taking the trade on the first break-out
where to place a stop-loss and why you should resist the temptation to move this to break-even at the first opportunity
how candlestick analysis can be used to support the...
FX WHOLESALE MARKET PARTICIPANTS - WHO ARE THEY, WHAT DO THEY DO AND HOW DO THEY DO IT?
Introduction
The foreign exchange market is the world's largest capital market, with daily transaction volumes between the various wholesale participants averaging $1.9 trillion This guide will give the reader a basic idea of who these participants are, and how they go about their business.
Who are the key participants?
? Banks. Primarily in the business of the distribution of money (whilst retaining some of it for themselves), banks act in several capacities dependant on situation.
? Investment Managers: Investing client money in the world's equity and fixed income markets, investment managers are required to effect foreign exchange...