Forex Trading Tips

Forex Trading Tips
By [http://ezinearticles.com/?expert=John_Gaines]John Gaines

Why  do hundreds of thousands online traders and investors trade the forex market  every day, and how do they make money doing it?
  This  two-part report clearly and simply details essential tips on how to avoid  typical pitfalls and start making more money in your forex trading.

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.

 
Confidence - Confidence comes from successful  trading. If you lose money early in your trading career it's very difficult to regain  it; the trick is not to go off half-cocked; learn the business before you  trade. Remember, knowledge is power.

  The  second and final part of this report clearly and simply details more essential  tips on how to avoid the pitfalls and start making more money in your forex  trading.


Take it like a man - If you decide to ride a loss, you  are simply displaying stupidity and cowardice. It takes guts to accept your  loss and wait for tomorrow to try again. Sticking to a bad position ruins lots  of traders - permanently. Try to remember that the market often behaves  illogically, so don't get commit to any one trade; it's just a trade. One good  trade will not make you a trading success; it's ongoing regular performance over  months and years that makes a good trader.

 
Focus - Fantasising about possible profits  and then "spending" them before you have realised them is no good. Focus on  your current position(s) and place reasonable stop losses at the time you do  the trade. Then sit back and enjoy the ride - you have no real control from now  on, the market will do what it wants to do.

 
Don't trust demos - Demo trading often causes new traders  to learn bad habits. These bad habits, which can be very dangerous in the long  run, come about because you are playing with virtual money. Once you know how  your broker's system works, start trading small amounts and only take the risk  you can afford to win or lose.

 
Stick to the strategy - When you make money on a well  thought-out strategic trade, don't go and lose half of it next time on a fancy;  stick to your strategy and invest profits on the next trade that matches your  long-term goals.

 
Trade today - Most successful day traders are  highly focused on what's happening in the short-term, not what may happen over  the next month. If you're trading with 40 to 60-point stops focus on what's  happening today as the market will probably move too quickly to consider the  long-term future. However, the long-term trends are not unimportant; they will  not always help you though if you're trading intraday.

 
The clues are in the details - The bottom  line on your account  balance doesn't tell the whole story. Consider individual trade details; analyse  your losses and the telling losing streaks. Generally, traders that make money  without suffering significant daily losses have the best chance of sustaining  positive performance in the long term.

 
Simulated Results - Be very careful and wary about  infamous "black box" systems. These so-called trading signal systems do not  often explain exactly how the trade signals they generate are produced.  Typically, these systems only show their track record of extraordinary results  - historical results. Successfully predicting future trade scenarios is  altogether more complex. The high-speed algorithmic capabilities of these  systems provide significant retrospective trading systems, not ones which will  help you trade effectively in the future.

 
Get to know one cross at a time - Each currency pair is unique, and  has a unique way of moving in the marketplace. The forces which cause the pair  to move up and down are individual to each cross, so study them and learn from  your experience and apply your learning to one cross at a time.

 
Risk Reward - If you put a 20 point stop and a 50  point profit your chances of winning are probably about 1-3 against you. In  fact, given the spread you're trading on, it's more likely to be 1-4. Play the  odds the market gives you.

 
Trading for Wrong Reasons - Don't trade if you are bored,  unsure or reacting on a whim. The reason that you are bored in the first place  is probably because there is no trade to make in the first place. If you are  unsure, it's probably because you can't see the trade to make, so don't make  one.

 
Zen Trading- Even when you have taken a position  in the markets, you should try and think as you would if you hadn't taken one.  This level of detachment is essential if you want to retain your clarity of  mind and avoid succumbing to emotional impulses and therefore increasing the  likelihood of incurring losses. To achieve this, you need to cultivate a calm  and relaxed outlook. Trade in brief periods of no more than a few hours at a  time and accept that once the trade has been made, it's out of your hands.

 
Determination - Once you have decided to place a  trade, stick to it and let it run its course. This means that if your stop loss  is close to being triggered, let it trigger. If you move your stop midway  through a trade's life, you are more than likely to suffer worse moves against  you. Your determination must be show itself when you acknowledge that you got  it wrong, so get out.

 
Short-term Moving Average Crossovers - This is one of the most dangerous  trade scenarios for non professional traders. When the short-term moving  average crosses the longer-term moving average it only means that the average  price in the short run is equal to the average price in the longer run. This is  neither a bullish nor bearish indication, so don't fall into the trap of  believing it is one.

 
Stochastic - Another dangerous scenario. When it  first signals an exhausted condition that's when the big spike in the "exhausted"  currency cross tends to occur. My advice is to buy on the first sign of an overbought  cross and then sell on the first sign of an oversold one. This approach means  that you'll be with the trend and have successfully identified a positive move that  still has some way to go. So if percentage K and percentage D are both crossing  80, then buy! (This is the same on sell side, where you sell at 20).

 
One cross is all that counts - EURUSD seems to be trading higher,  so you buy GBPUSD because it appears not to have moved yet. This is dangerous.  Focus on one cross at a time - if EURUSD looks good to you, then just buy  EURUSD.

 
Wrong Broker - A lot of FOREX brokers are in  business only to make money from yours. Read forums, blogs and chats around the  net to get an unbiased opinion before you choose your broker.

 
Too bullish - Trading statistics show that 90% of  most traders will fail at some point. Being too bullish about your trading  aptitude can be fatal to your long-term success. You can always learn more  about trading the markets, even if you are currently successful in your trades.  Stay modest, and keep your eyes open for new ideas and bad habits you might be  falling in to.

 
Interpret forex news yourself - Learn to read the source documents of  forex news and events - don't rely on the interpretations of news media or  others.


John Gaines
  rel=nofollow [http://www.forextrading-system.com/]online trading, currency trading,  financial service
A veteran of online trading, John Gaines offers the financial services industry his perspectives and expertise on a variety of trading systems and financial instruments, including forex, CFDs, futures, options and stocks.
Article Source: [http://EzineArticles.com/?Forex-Trading-Tips&id=113582] Forex Trading Tips