WHAT IS FOREX MARKET :
The Forex market is a non-stop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events.
The main enticements of currency dealing to private investors and attractions for short-term Forex trading are:
24-hour trading, 5 days a week with non-stop access to global Forex dealers. An enormous liquid market making it easy to trade most currencies. Volatile markets offering profit opportunities. Standard instruments for controlling risk exposure. The ability to profit in rising or falling markets. Leveraged trading with low margin requirements. Many options for zero commission trading.
Forex tradingThe investor's goal in Forex trading is to profit from foreign currency movements.
Forex trading or currency trading is always done in currency pairs. For example, the exchange rate of EUR/USD on Aug 26th, 2003 was 1.0857. This number is also referred to as a "Forex rate" or just "rate" for short. If the investor had bought 1000 euros on that date, he would have paid 1085.70 U.S. dollars. One year later, the Forex rate was 1.2083, which means that the value of the euro (the numerator of the EUR/USD ratio) increased in relation to the U.S. dollar. The investor could now sell the 1000 euros in order to receive 1208.30 dollars. Therefore, the investor would have USD 122.60 more than what he had started one year earlier. However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the very minimum, the return on investment (ROI) should be compared to the return on a "risk-free" investment. One example of a risk-free investment is long-term U.S. government bonds since there is practically no chance for a default, i.e. the U.S. government going bankrupt or being unable or unwilling to pay its debt obligation. When trading currencies, trade only when you expect the currency you are buying to increase in value relative to the currency you are selling.
If the currency you are buying does increase in value, you must sell back the other currency in order to lock in a profit. An open trade (also called an open position) is a trade in which a trader has bought or sold a particular currency pair and has not yet sold or bought back the equivalent amount to close the position.
However, it is estimated that anywhere from 70%-90% of the FX market is speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency.
Foreign Exchange This short introduction explains the basics of trading Forex online, a brief explanation of the markets and the major benefits of trading Forex online. There are also two scenarios describing the implications of trading in a bear as well as bull market to better acquaint you with some of the risks and opportunities of the largest and most liquid market in the world.
TRADING TIPS ::
STEP 1 : Read both the books by Mark Douglas which cover trading psychology BEFORE you read or do anything else. If you don’t, I’ll say I told you so when you hit a failure barrier and don’t know why.
STEP 2 : Stop loss policy - you MUST have one and practice, more practice and even more practice at sticking to it. It will not be easy but it is an essential discipline to profitable trading.
STEP 3 : Trading plan / system. Again, you MUST have one! Then you must practice sticking to it. Do not try and second guess or trade against your indicators - wait until they give you a concise signal before acting on it.
STEP 4 : TRADE WITH THE TREND. DO NOT trade against the hourly trend of the market unless you are VERY certain the market has turned. Check this by watching a long term moving average (say 80 SMA on 15 minute chart).
STEP 5 : Learn to sit on your hands and not trade! It’s better to wait for good quality trades than take a mediocre one and loose money. A day of no trades is better than a day with one loosing one. If you don’t like the market, just walk away. It will always be there later.
STEP 6 : Don’t set yourself false targets and expectations. Trading is not an EXACT science and if you do you will only become frustrated by your failure to meet them. Take what the market gives and be satisfied. Greed will kill you as a trader, both mentally and monetarily. .
STEP 7 : The market is rarely your friend in a trade that goes against you. Cut your losses quickly and accept them as an inherent part of trading. You will not be able to trade without some loosing positions. Manage them well!
STEP 8 : Try hard not to get out of profitable trades too early. Try operating a trailing stoploss of say 15 to 20 pips behind the trade (on 5 minute timeframe) and maximise your good trades by letting them run. Be patient!
STEP 9 : Ensure you fully understand how to generate and use pivot points and camarilla points on your trading platform. These are crucial decision points for daily trading and you will struggle without them.
STEP 10 : DO NOT overtrade your account. Read up on money management in trading to make sure you fully understand why this is important and develop a strategy which fits with your personal trading capital. NEVER risk wiping out your account because believe me, it can happen. I’ve done it twice myself!
STEP 11 : Learn about FIBONACCI levels and how to apply them to your charts.
STEP12 : Keep your trading system simple. Do not have too much information on your trading screen. It is unnecessary and will only cause you to be confused and delay you making your trading decisions.
STEP 13 : Always think in terms of probabilities. Trading is all about thinking in probabilities NOT certainties. You can make all the “right” decisions and the trade still goes against you. This does not make it a “wrong” trade, just one of the many trades you will take which, through probability, are on the “loosing” side of your trading plan. Don’t expect not to have negative trades - they are a necessary part of the plan and cannot be avoided.
STEP14 : Ensure that the candle is fully formed on the timeframe you are trading BEFORE you enter your trade. Trade what you see, not what you would like to see.