Forex Currency Trading

Forex traders use a variety of different strategies and time frames to trade the markets, and one of the most popular tactics is to adopt a short-term forex trading strategy. However, with so much volatility every day, can you really make consistent profits this way?

Well I’ve traded the markets for many years and in my opinion, although you can make profits short-term trading, it’s a very difficult (and stressful) way of making a living.

So why is it so difficult?

Well it’s generally the case that financial markets, and currencies in particular, move in trends. However while this is true of medium and long-term charts, ie 30 minute up to weekly and monthly charts, when you get down to 1 and 5 minute charts, you’re basically just looking at noise.

Prices will whipsaw all over the place and it’s very difficult to trade with any confidence. While you will sometimes get breakouts that can result in a fair few pips profit, you will also get a lot of false breakouts and will be constantly stopped out of positions when your stop loss gets triggered.

Basically it’s a very difficult way of trading and a very difficult skill to master. Yet so many people new to forex trading are seduced into short-term trading excited by the fact that they can grab say 20-50 points in a matter of minutes.

However, you can also lose a lot of points very quickly and instantly be whipsawed out of a position, especially if you are trading through news announcements. The end result of this is that a lot of short-term traders eventually find out how difficult it is to consistently make money this way and will often give up forex trading altogether.

So should you forget about short-term trading or scalping altogether?

Well not necessarily. There are definitely people who make consistent profits this way, and there are times when you may have a larger longer term position and you see an intraday opportunity to get in and grab a few points.

For instance, you may be 100 points in profit thanks to a long-term long position, but confident of a continued move upwards, you think the price has gone too high in the short-term, and you decide to go short to catch a short-term retracement. This is one example of where short-term trading may be appropriate.

Another instance may be where you notice that a currency is strongly trending upwards on the 30 minute and 4 hour charts, yet is oversold on the 5 minute chart after a brief retracement. In these instances it can be very profitable to use the shorter term charts to look for opportunities to take a value position in the same direction as the longer term trend.

So you can use short-term charts to look for positions, but it’s always important that you look at the longer term picture before doing so. My own personal opinion is that just trading 1 and 5 minute charts without looking at say the 15 or 30 minute charts, at least, is suicidal.

So much of the price movements on a minute-by-minute basis is just noise, and will move all over the place, which is why it is so difficult.

To sum up, I would say that people should always look to take longer-term positions as they are a lot less stressful and are more prone to follow trends, therefore making them potentially a lot more profitable. Plus you can potentially grab movements of 1000+ pips rather than sitting at your computer all day looking for 5-20 point movements.

James Woolley runs a blog at http://theforexarticles.com where you can learn forex trading. You can also read his review of Avi Frister’s Forex Trading Machine by visiting http://theforexarticles.com/forex-trading-machine-review

It is known that currencies react to a series of events such as inflation, interest rates, the state of the economy, and so forth. Because of this, it is vital to keep evaluating the various data, in order to form an opinion of the direction the currency of your choice might be heading.

Let us look at inflation and what it actually means. It is not about a particular model of a boat or a motorcycle, or certain services costing more money, which could be due to business enterprise success or failure, but about a widespread increase in prices throughout the country.

The rate of the inflation is based on a calculation of the average price change right across the economy. This is usually taken over a period of a year, hence the term annual inflation.

If there is an annual inflation rate for a particular month, say March this year of two per cent, it would mean that the prices in general were 2 per cent higher this March, than in the same month last year. Therefore, a blend of usually purchased items costing GBP100 last March, would be costing GBP102 this March.

To get the right reading, prices are taken all over the country in many sectors like the supermarkets, big stores, travel and insurance firms, etc.

There are other issues which set the level of inflation in the economy, but the fundamental causes of inflation have to do with the extent of demand in the economy, and can be narrowed down to how much cash can be spent in relation to what can be produced.

When demand shoots up above what can normally be produced in normal circumstances, this upward pressure creates a rise in costs and prices. When the demand is down, this creates a downward pressure in costs and prices. To keep inflation controlled, it is required to keep a balance between the demand and output situation. When you have an excessive demand to the supply position, you have a formula to generate an inflation climate. This is the reason for stability as a goal.

Lowering interest rates may well see a rise in output, but only for a limited period. If both demand and output have been strongly increased and then suddenly fall, it is called boom and bust.

It is also useful to keep an eye on the extent of the employment and unemployment figures. These can indicate the size of the economic movement as well as the weight of labour demand, increases of wages, and of prices.

Do not forget to take notice of the (CPI) Consumer Price Index which is an important measure of inflation.

Watch also the balance of trade situation. A trade surplus is a positive balance of trade, namely the exports are bigger than the imports, whereas a trade deficit is a negative balance of trade with imports being larger than exports.

There are a number of other points that can be looked into of course, but the main ones are important to keep in mind at all times.

A number of people follow the charts, and keep an eye on what the position was year after year.

There is no known magic formula as such, to positively determine the direction of any currency pair, but being informed as much as possible, goes a long way to narrow the odds against you.

Paul Dubsky is director of Foreign Currency Exchange Services Ltd. The company is focused on being able to offer really friendly currency exchange rates and international money transfers http://www.foreigncurrencyexchangeservices.co.uk

When trading currencies online, there are several basic order types that you need to know. While there are a variety of orders that may be placed, remember to keep it simple, especially you beginning forex traders.

Market Order: Orders to get in or out of a position at the current market price. Execution is typically guaranteed, but price is not. A market order ensures that you will get into or out of the market.

Limit Order: Orders that specify that a trade must be executed at a specific price in the future. Execution is typically not guaranteed, but rather a “best efforts”. They can be used to enter or exit a position.

Take Profit Order: A limit order that currency traders can use in an attempt to capture accrued profits and exit a position.

Stop Order: A stop order is used most often to protect against accruing additional losses, although execution and price is not always guaranteed. The most common use of a stop order is to set an exit point for a losing trade to try to limit risk. The term “stop” refers to stopping a loss.

Trailing Stop Order: A trailing stop order allows you to configure your stop order to continue to follow the price movement in real-time by specifying the distance in pips you would like your stop to move, depending on the market direction. As opposed to a hard stop like above.

Order Cancels Order (OCO): Also known as One Cancels Other. After entering the market, a limit order to protect profits, and a stop-loss order to limit losses can be placed. When either the limit or the stop order is executed, it will cancel the other order automatically.

Day Order: A day order remains in effect until the end of the trading day. Because the forex market is a 24 hour ongoing market, the end of the day is either a set hour or until the opening of the Asian market.

Good till Canceled Order (GTC): A good till canceled order remains active until the trader decides to cancel it, or it is triggered by the parameters set by the forex trader. It is the traders responsibility, not the dealers, to remember there is an open order.

When trading currencies in the forex market, stay away from complex order methodologies because of the increased possibility for mistakes and errors. It’s just too easy to push the wrong button in a complex sequence during the fast moving trading hours.

The forex market is changing rapidly. Even as recently as two years ago it was relatively rare to find a dealer who offered trailing stop orders. Now it seems most, if not all do. So keep abreast of new technology by reading articles and forum posts. Good luck in your currency trading!

James is a successful online currency trader and also runs the popular website http://www.todayscurrencytrading.com. Go there now and you can sign up for his FREE, “Currency Trade of the Week”.

Online currency trading (also known as FOREX, for foreign exchange) has all the benefits that a trader could want. With the 24 hour, 6 days a week marketplace, you can trade before work, during work, or after work. Whenever you see fit. The day begins in New Zealand and follows the sun through Asia, into Europe, and then the US. Then it starts all over again.

The FOREX market is the most liquid market in the world. That means that a trader can enter or exit the currency market whenever they want. With no commissions and no gaps, or lock limits, and no daily trading limit either. This market is bigger in daily volume than all of the other stock, bond, and futures markets of the world combined! And then some!

Leverage of 100 to 1 is considered normal when currency trading. Compare that to the 2 to 1 margin accounts at your stock brokerage. Plus, there’s no margin interest expense either. But you better have your risk management system in place because, remember, leverage cuts both ways.

You’ve heard the saying,the trend is your friend. Well guess what the best trending market is? That’s right, the FOREX market. Central banks and governments set their own monetary policy. Take the Fed for example. They don’t (usually) raise interest rates today and then next week lower them. And then raise them again. No, they tend to gradually, over time, raise them, month by month, until they feel they are correctly positioned. And then they lower them, month by month, or quarter by quarter, whichever. That gradual tightening and loosening over an extended period of time is what creates those wonderful trends.

When you are trading currencies online, remember to trade with the trend. And when the trend ends, get out. It’s that simple, just not that easy. Then start looking for the trend to reverse itself. You need to have no hang ups about being long or short when you trade currencies. At any given time, approximately a third of the currency pairs are are going up, a third are going down, and the other third are going sideways. So don’t be afraid to go short. If you are coming from the stock market, there are no short squeezes to worry about, no one uptick rule, or any other crazy rules. You just decide to buy or sell; that’s it.

When you trade currencies online, they are always bought and sold in pairs. An example of a currency pair is the popularly traded EUR/USD. This is the Euro vs. the U.S. Dollar. The currency on the left is called the base currency. The one on the right is the cross currency

If you buy the EUR/USD currency pair, you are buying euros, and at the same time, selling dollars. You would do this if you think the Euro is going to rise in value and/or you think the Dollar is going to fall in value.

If you sell the EUR/USD currency pair, you are selling euros, and at the same time, buying dollars. You would do this if you think the Euro is going to decline in value and/or you think the Dollar is going to rise in value.

Currency trading has so many benefits and advantages to it, it is no wonder why it is the fastest growing segment of the online trading community. The FOREX market offers superior potential to realize profits in any market condition or business cycle, making online currency trading an ideal diversification element in your total investment portfolio.

James is a successful online currency trader and also runs the popular website http://www.todayscurrencytrading.com. Go there now and you can sign up for his FREE, “Currency Trade of the Week”.

You may have an illusion that forex trading is something very easy and simple but in reality a lot of trader will lose all the money they have. So what are the mistakes they made?

In fact, the number one mistake they make is that they do not prepare well. They will think that they can make money by following a system from others. They may even think that they can predict the forex price. In fact, you should not just follow the others if you want to be successful in forex trading.

Besides, some people lose because they think that there is a formula for them to follow and they can just trade according to this scientific formula. However, the sad fact is that there is no such formula in the world. If such formula really exists, all of us have already become billionaire.

The most serious mistake, according to experiences, is probably being too greedy. Some traders want to make the most money out of the market and they try to predict the highest price they call trade. They will be reluctant to make the deal even if they know they have already made some money. However, they will only find later that they cannot make money or even lose because they have missed the chance.

In fact, discipline is very important if you want to be successful in the forex market. Most traders know that it is important but they are just unable to do so. And this will make them lose money in the market.

You have to do your own research. You have also to study the market yourself. Of course you are also going to make your own decision. You should not just listen to what others say. Instead you should only take the opinions of the others some advices.

Besides, if you have set a target, you should make the deal when it is achieved. You should never think that you will be able to make more money and forget your original target. As discussed, this is the most serious mistake some traders make.

To be honest, forex trading is not easy. However, if you can work hard and do your own research, you will always have the chance to make money. You have to keep learning. Education is probably the most important thing if you would like to make money from forex trading. And if you have the discipline and educate yourself well, there is no reason why you cannot be successful in the marketing.

The Author has a website on Financial Planning http://myfinancialexpert.info/