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Evaluating the Forex Market
by Todd Judkins, FX Trade Central
Learning to trade the forex market can be a valuable lifetime financial skill. The road to financial freedom requires a toll be paid in the form of perseverance and dedication. The journey starts with a single step and that step should be in the direction of developing a strong foundation in forex market analysis. In this article we are going to go over some forex market evaluation strategies designed to manage profit and losses in your currency trading account.
For anyone starting out trading the forex market, managing your trading can be a daunting task. Everything else seems to take priority over proven evaluation techniques. Learning the currencypairs and the myriad of technical indicators can at first be all encompassing, but building a solid market evaluation approach will allow you to maintain the big picture necessary for successful forex trading.
It all begins with a trading plan. Your forex trading plan should be your hard and fast guide to trade execution. Your trading plan should reflect your trading philosophy and style. Your plan should also contain key forex market evaluation strategies. Below are some currency market evaluation rules that can be embedded into your forex trading plan.
1. Price Action
In the end it is all about the price. Take a look at the current price behavior. Determine if the market is oversold or overbought. Are there any signals indicating a reversal, continuation or retracement? Where are the areas of support and resistance?
2. Market Condition
Access the overall market conditions. Look at both long and short term views. Access if the market is range bound or trending. Look deep into the market using multiple time frames in your technical analysis to determine if the currency pairs are trending short term in a long term range bound market or vice versa.
3. Price Target
Determine what your price target is for the respective ranges and time frames. Patiently time your trade executions. You will be rewarded. Use your price action evaluation and market conditions to determine your price target.
Ask yourself if it makes sense and look for reasons NOT to enter a trade. When you cannot find those reasons then it is onto trade execution to determine reward-risk ratios and stop losses!
4. Stop Loss
Determine the criteria for stopping the trade on both profit and loss side. Decide upon both technical and fundamental stops. No one is correct 100% of the time, in fact when we trade leveraged instruments like currencies we can be profitable with less than a 50-50 win-loss ratio when we have excellent money management skills.
If you trade without a stop-loss then your forex experience will be a short-term activity!
5. Risk Managementt
Determine how much capital you are going to risk in a given trade. This is critical. You have performed all your evaluation and your exact risk should be a known quantity.
You should also have a minimum reward to risk ratio established in order to limit your losing trades while giving the best odds for the trade to be profitable. This risk to reward ration should be determined by your trading style and time frames used.
Finally, talk the trade through with your trading group or out loud if you are alone. Trust me; you will not be the first forex trader to talk to yourself. Being able to talk through a trade will reinforced the positive aspects of the trade and confirms that your trade will be executed in accordance with your trading plan.
Then it is time to celebrate, because even if the trade does not go your way you had solid execution. You had a losing trade and not a bad trade. That is the difference between successful and non-successful traders. The law of averages will eventually reward you.
If forex is your path to financial freedom, then it should be your business as well. Developing a solid business (trading) plan and market evaluation approach will be your foundation for success in the forex market.
Todd Judkins is an entrepreneur and forex trader at FX Trade Central. He blogs regularly at
http://forexjourney.blogspot.com.
Trading with Optimism or Pessimism
by Joe Ross
“Hey Joe: Is it better to be an optimist or a pessimist when you are trading?”
That is a very interesting question. It would seem than being somewhat pessimistic would cause a trader to take fewer trades and cautiously manage the trades he/she takes. In contrast it would seem that a more optimistic trader would tend to trade more often, taking greater risk.
However, studies have shown that neither of the above is true. In a recent study, men and women did not differ in their levels of optimism, but optimistic men made more risky trades (futures, options, number of transactions) than pessimistic men, pessimistic women, or optimistic women. In the study, being more optimistic and making more risky trades didn't seem to have any negative consequences.
The final values of the accounts did not differ between men and women, or between optimists and pessimists. Optimistic men, although making riskier trades, performed the same as everyone else. The study was inconclusive.
Is being an optimistic trader a bad thing or a good thing? The verdict is still out. Additional studies are needed. All the same, it's probably not a good idea to be optimistic to the point of putting on trades without carefully managing risk, such as limiting the size of a position or using protective stops.
But perhaps a moderate amount of optimism and confidence is useful. One of the results of the study was to point out that pessimists often panic, become fearful, and tenaciously deny they are in a losing trade. A moderate amount of optimism, in contrast, ensures that even in the midst of a losing trade, an optimist may be more likely to seek out information and make an informed decision.
So, in the final analysis, it is a little like walking a tightrope between extreme unrealistic optimism and extreme debilitating pessimism. Finding the right balance is the key to trading consistently and profitably.
Joe Ross
Trading Educators Inc
Joe Ross has been trading for more than 47 years, and is a well known Master Trader. He has survived all the up and downs of the markets because of his adaptable trading style, using a low-risk approach that produces consistent profits.
Joe is the creator of the Ross hook, and has set new standards for low-risk trading with his concept of "The Law of Charts™." Joe was a private trader for most of his life. In the mid 80's he shift his focus and decided to share his knowledge. After his recovery, he founded Trading Educators in 1988 to teach aspiring traders how to make profits using his trading approach. He has written 12 major books on trading. All of them have become classics and have been translated into many different languages.
Joe holds a Bachelor of Science degree in Business Administration from the University of California at Los Angeles. He did his Masters work in Computer Sciences at the George Washington University extension in Norfolk, VA. Joe still tutors, teaches, writes, and trades regularly. Joe is still an active and integral part of Trading Educators.
Article Source: http://EzineArticles.com
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Currency Exchange: Pick Any Destination - Michael Russell
Beginning Forex - How Are Lots Traded & What the Heck is a PIP? - Amber Lowery
Introduction to Fundamental Analysis - Harry Silverman, Editor
Technical Analysis of Forein Exchange Charts Is Only A Guide - Stephanie Mundle
Types of Foreign Currency Hedging Vehicles - by John Nobile
Factors Influencing a Currency Pair Exchange Rate
By Joshua Kunken
Introduction
The exchange rate refers to the value of the US dollar against the values of currencies of other countries. Such a rate helps determine how much we pay for imported goods and services and how much we receive for what we export, among other things. When the value of the US dollar drops, imports become more expensive, and we tend to reduce the volume of our imports. Simultaneously, other countries will pay LESS for some of our products and that will tend to boost export sales. If imports and exports are a substantial part of a country's economy, as is the case with Canada, the exchange rate plays a particularly important role in our economy. The exchange rate between two countries' currencies is particularly important if the two countries are heavily involved in trade.
What factors affect an exchange rate?
A country's exchange rate is typically affected by the supply and demand for that country's currency in international exchange markets. This is typically known as a floating exchange rate. If demand, for say dollars, exceeds supply, then the value of the dollar will go up. If however, the supply of dollars exceeds demand, then its value will go down. A huge amount of money is bought and sold on international exchange markets for many different currencies.
Several factors influence the supply of, and demand for, a given country's currency.
If INTEREST rates are HIGHER in, say, the US than in other countries, then investors WILL choose to invest in the US, increasing demand for the dollar, provided that the expected rate of inflation is not higher in the US than among our trading partners. If INTEREST rates are LOWER in the US than in other countries, investors will choose NOT to invest in the US, decreasing demand for the dollar.
If the US INFLATION rate is HIGHER, investors are LESS likely to prefer the US -even with higher interest rates- because of the expectation that the value of the dollar will be ERODED by inflation. If our INFLATION rate is LOWER, investors are MORE likely to prefer the US, because there will be NO expectation that the value of the dollar will erode.
Trade balance also has an effect on a country's currency. If world prices for what a country exports rise in comparison with the cost of that country's imports, that country will be earning more for its exports than it pays for its imports. The more demand there will be for that country's currency, the better the deal becomes. If investors are confident that the US economy will be strong, they will be MORE likely to buy American assets, pushing UP the dollar's value. If investors are not so confident that the economy will be strong, they will be LESS likely to buy the country's assets, pushing the dollar's value DOWN.
Joshua Kunken is Chief Currency Analyst for ForeignMarketWatch.com
Do you have what it takes to become a successful Forex Trader?
Forex trading, or any trading for that matter, is an occupation that requires experience and the accumulation of proficiency not unlike any other highly skilled profession. Whether you are a leading executive at a major publically traded company, a professional golfer or trading from your kitchen table, there are 5 key ingredients that one must possess in order to become successful.
- You must be Passionate about what you do.
As Forex traders we all face one unique set of circumstances that does not exist in any other profession. We get rewarded for when we succeed and equally punished when we don't! Could you image a corporate worker one quarter receiving a significant accomplishment bonus and the next quarter actually getting money taken from their paycheck for missing performance targets? Not on your life! We do as Forex traders and that is why passion for what you do will carry you through the tough times that are part of your trading business. Asked yourself why you trade currencies and would you still do it if Forex were not potentially lucrative? Your answers will be quite revealing. You've got to feel your passion for trading!
I talk to so many people that enter into Forex trading with the aspiration of getting rich quick. Without putting the time and energy into really getting good at trading I see them jump from strategy to strategy looking for the goose that will lay the golden egg and eventually quitting while blaming everything else, except the true cause. I got news for you - you are the goose and your Forex education is the golden egg. The magic has always resided with the magician and not some strategy. Work hard at trading and the rewards will eventually come your way. Remember what Tiger Woods said, "Funny, the harder I work the luckier I get." Apply yourself as a trader and it will be no accident when your account begins to blossom.
Now here is the hurdle most Forex traders struggle to get over. You have the passion and you are applying yourself to your trade, now focus and really get good at just at what you are doing. Be the expert to the experts at just that one thing. Become the master of a strategy or risk management methodologies. Really focus on getting good at it. Stop jumping around or getting pulled from the last "latest and greatest" into the next "latest and greatest" and focus on one aspect of Forex trading and know it inside out. Know it strengths and weakness. Set your sights on becoming expert on just one aspect of trading and watch it spill over in all other aspects for your currency trading. This is the time to fail forward fast, use every setback as a learning opportunity that will propel you 3-steps ahead!
In Forex Trading this is simple. Assume there is someone on the other side of your trade that is pushing themselves and sharpening their edge. To be successful you must you must do the same thing. Now is the time to examine your mental edge. Do you know the single most critical factor in any currency trade? It is you, the trader! Sharpening you mental edge is the most difficult aspect of trading, but also the most rewarding. Start with your Forex education and gain the self-awareness necessary to maximize your strengths and suppress your weaknesses. Any expert will tell you that trading is 80% mental. It's time to sharpen your trading to the razor's edge and you do this through Forex education. A constant and never ending process that will become the cornerstone of your Forex experience.
You will fail. I can state that emphatically. However, you will not be defeated unless you allow your failures to control your trading. It is the old adage; failure is not falling of your horse, failure is refusing to get back on. Your success depends on your ability to dismiss the criticism, rejection, self-doubt and pressures associated with Forex trading. Defining what is a winning trade, losing trade and bad trade will go a long way into developing you as a successful trader. Without the determination and persistence in all aspects of your trading life, obstacle will definitely appear closer and larger than they actually are.
Take a moment and assess yourself and your trading. Do you have the key elements to succeed? Which areas are presents development opportunities? When conducting a self-evaluation it is critical to be totally upfront and honest with yourself. After all, you will only be dishonest with yourself. One of the most interesting observations you can make is that all key success factors are interwoven. One factor supports the other. This is why your Forex education is a continuous journey of forex strategy, money management and self-mastery. Set these factors as your Forex education goals and take your currency trading to new heights.
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