PREPARING YOURSELF ADEQUATELY BEFORE JUMPING INTO THE MARKET

PREPARING YOURSELF ADEQUATELY BEFORE JUMPING INTO THE MARKET

FOREX TRADING ACCOUNTS

    Most brokers offer a wide array of trading accounts and different platforms.

    In almost every one of them, you will find a demo or practice account that will allow you to get acquainted with their platform’s particular characteristics and implement your strategies in a safe environment without the risk of  losing  any  of  your  funds  until  you  are  totally  confident  about  the mechanics involved.

Real-money accounts are diversified to allow traders of any skill level and capitalization to start their trading career in the measure of their capabilities. The smallest trading accounts you can find are the micro- or mini accounts, where the starting capital required is usually very small (ranging from $25 to $500) and where there are certain limitations as to the number

of lots traded. Almost all brokers offer a very high leverage on those starter

accounts, which ranges from 100:1 to as much as 500:1.

In mini- or micro accounts, you can trade mini lots, which represent as

little  as  1/10  of  a  standard  lot  ($10,000)  or  0.1  lot,  with  a  small  margin requirement,  yielding  $1  per  pip.  Some  brokers  even  allow  trading  of micro lots,which  are  1/100  of  a  standard  lot  or  0.01  lot,  at  a  value  of  10

cents per pip or nano lots ($100), which represent a value of approximately

1 cent per pip.

Among standard accounts, some brokers allow only regular full standard

lots ($100,000), whereas others add the option of trading fractional or mini

lots. The initial capital requirement for standard or professional accounts is

much higher, ranging from $2000 to $50,000 and more, with different levels

in between, as well as added benefits or limitations, particularly with respect

to leverage, which is usually not higher than 100:1.Finding the most appropriate broker is a task that shouldn’t be overlooked because it can make all the difference between your success or failure in the FOREX  market.  Speed  of  execution  is  paramount,  but  also  honesty and transparency have to be considered. Demo accounts are good for practicing and acquiring trading skills, but they won’t allow you to gauge their performance and attitude in real life. The actual features come onto the scene only after you open a real-money account.I always say paper trade, paper trade, paper trade. You simply have to be getting consistent  results  with  your  paper  trading(demo  trading)before you can start using real money. Most investors, especially first-time traders(“newbies”), tend to trade well on a demo and then lose it when they shift over to a real or live account. Why is this? Simple. I have heard it all too many times: “James, I made 20 plus trades without a looser. When I shifted

to a real account, I felt like every trade I made went against me.” Then I fol-

low by saying, “Aren’t you doing the same thing” I usually hear: “Well, I couldn’t do the exact same thing. It is real money.” Therein lies the difference in results. Paper trading is part of the learning process. Once you have mastered it, then you can move on to a real account. Some traders will pick this up faster than others; it could take you a few weeks,  months,  or  even  years.  That’s  right,  it  could  take  you  some  time before you are ready to trade real money. If you want to see the true success of the FOREX market, you have to put some time in. With  the  advent  of  the  micro  account,I have found that opening an account with $25 to $150 is actually better than demo trading because you are now learning  with  real  money,  and you are developing good trading habits. Regardless of what you do, make sure that you practice your trading plan prior to trading any large accounts with real money.

Not every broker is suited for every trading strategy. Thus it is quite difficult to choose the best FOREX broker for you. Some strategies, such as scalping, will require extremely low spreads and swiftness of execution; for other,longer-term strategies that involve overnight interest, swap will be a major concern. Evaluation of the trading-platform software before making a decision is important  because  there  are  significant differences among them,and some might perform better than others, as well as offering different features, such as hedging capabilities on some of them and one cancels the other (OCO)orders and if-then options on others. However, this is only the means to access the broker’s services, which in reality is the most important part and what has to be assessed in detail before you trust any broker with your hard-earned money.With the most recent FOREX oversight initiatives enacted within the farm bill,changes are coming.As of this writing,not all the anticipated changes have been implemented across the board. I would suggest that you stay informed. The best way that I can help to keep you informed is to provide real-time updates and valuable FOREX information at your fingertips through my Web site,  Cents Zero.com It is easy to check a broker’s reputation over the Internet and, more particularly, to see if the broker is regulated or not at least in its country of origin. A good  broker should comply with a few minimum basic requirements.

REGULATION, REPUTATION, AND SIZE

Although the FOREX market is not regulated, because there is no central exchange,individual brokers have to operate under a set of regulations defined by every country’s own financial regulatory bodies. For example,in the United States, a  broker should appear as registered with the  Commodity Futures Trading Commission (CFTC) as a futures commission merchant (FCM) and as a member of the National Futures Association (NFA).The  status of a  broker can be verified directly with  those  organizations; additionally,a broker should be showing a clean record with them. Some brokers,especially  offshore  brokers,  don’t  possess  any  kind  of  financial regulation,so they represent a risk in dealing with your money because they could disappear and leave you with no legal recourse. Brokers in the United Kingdom are regulated by the Financial Services Authority (FSA).You should check carefully the kinds of regulatory bodies with which the broker claims to be registered and verify if indeed it is a real financial regulatory institution or simply a business generic registration.Currently, several U.S. FCMs allow you to choose if you would like to open an account in the United States or overseas,most specifically in the United Kingdom,which has good oversight as well. The reason for doing this is that with the most  recent changes,some traders are electing to go overseas so that they can continue to trade the way they want.One example of this is that in the United  States,you can no longer hedge your trades in the same account. Thus traders who like to use hedging a strategy that requires you to go long one currency and go short the same currency at the same time now will have to use multiple accounts or go offshore. If  your  broker is affiliated with any of the important exchanges,this adds a significant qualification because it implies that the broker is larger in size and thus has more representation on the markets, and it vouches for longer term expectations for its business life. Check, for example, for any membership at the Chicago Board of Trade, the London Metal Exchange, the New York Mercantile Exchange, or other commodity exchanges. Size and years in business are extremely important because they further guarantee that there will be less of a chance that the broker falls into bankruptcy,unlike a broker that is new and barely starting its activities. Having a large number  of  customers  and a bigger capitalization testifies to the broker’s level of responsibility and commitment.The reputation of a FOREX broker can be easily checked on Internet by adding the word review, scam,or problems to the broker’s name in your favorite search engine. Read the opinions of other traders on forums and trading communities; do thorough research before entrusting your money to any broker. You must have a great deal of confidence in your broker, and this confidence has to be backed up by real facts, not just the advertising hype (smoke and mirrors). Use a practice account for a while, prepare some basic questions, and ask the broker’s customer-support team to gauge the broker’s credibility and responsiveness.

I highly recommend that you deal only with certified brokerage firms. Check the possible connection to banks or financial institutions. Although there are not many brokers who will disclose the names of all their liquidity providers, investigate these relationships further. FOREX transactions are mostly based on credit, and therefore, this is a very important element in your research.

GUARANTEE OF PRICES AND FILLS

Quotes on currency pairs should be guaranteed,as well as the fills on your stop-loss and limit orders. This is usually expressed as a “no slippage”policy,  where  the  price  offered  should  be  the  same  as  that  at  which  your market or pending order will be transacted on entry as well as on exit. If there are no clear rules on this subject, keep searching further. A good broker should have enough financial strength to meet these requirements and guarantee the quoted prices, at least in normal market conditions.

HONESTY

How does your broker control prices? Are there  blatant  differences  with other price feeds in the industry?A dishonest broker can take advantage by delaying entries and manipulating the price feed,showing a different price or constantly requiting, slipping,and spiking prices.

 To know more You can always go to :-history the Stock Exchange

LOCATION

Where is your broker located? If it is an offshore FOREX broker, is there any kind of regulatory institution where it is duly registered and acknowl edged?  If not,how  can you obtain a guarantee on your funds should the broker file for bankruptcy? You might obtain some advantages with an off-shore business with respect to taxes,but check first to see if it is really

worth the risk.

MINIMUM INITIAL DEPOSIT

It  is usually safer to go with a broker that asks a low deposit for starter accounts. Asking for higher amounts from the start, especially in the case of retail brokers,can be a red flag.You should look for a broker that asks for a small initial requirement,  usually around $200 to $500,which is designed  for  new  traders  to  test  the  markets  with a real account without putting too much money on the line.

CUSTOMER SERVICE

Good customer service is very important, especially when problems arise.

A broker should treat all its customers with the same level of professionalism and courtesy and be swift at providing orientation on complicated matters and questions that could arise when markets are very volatile or should a technical problem occur with the price feeds or connection to the platform’s server. Since FOREX trading hours are continuous from Sunday to Friday afternoon, the broker’s customer service should be available during the same time span,24 hours a day,5days a week. IBs often will piggyback the customer service of their FCMs when it comes to specific

trade questions. If you have any question about your closed or stopped-out

orders, you need to be able to receive a fast response independent of the

time of the day.Some brokers offer an online chat support service; others have only a phone-based support desk. Make a list of sensible questions, and take note of  the  attitude  and  knowledge  the  support  staff  show  when  they  answer.They always should be courteous and eager to help and have appropriate knowledge  of  common  matters  that  arise  in  day-to-day  transactions  and events. If you don’t feel totally comfortable with their answers or perceive any doubtful behavior, keep looking elsewhere.

SPREADS AND  SWAPS

FOREX overnight swap rates should be publicly available,either on the broker’s  Web  site or via the trading platform.Some have fixed swaps;others vary slightly every day depending on price fluctuations and number of transactions. Check for any excessive difference with regard to the usual calculation of overnight interest.The spread is the amount of money a broker makes on every transaction its customers perform.If the difference between the bid and offer prices  is low, the broker’s service is cheaper, and the profit value will be higher. It is always better to choose a broker with lower spreads.I always like to say that you get what you pay for. Keep in mind that just because you get the tightest lowest spreads in the industry doesn’t that mean you are not paying somewhere else. IBs and FCMs are in business to make money profit is not a dirty word but everyone  has  to make money or it is not a good opportunity. You will just have to use good due diligence or a  referral to find  the  best  place to trade.I go to great lengths  to  make  sure  that the FCMs to which I refer customers from are the best.Also keep in mind that some brokers, in order to provide the tightest spreads,are now charging commissions a fee to get in and a fee to get out similar to the equities markets. IBs are usually paid a fee for the customers they introduce to the  FCM.This will have no impact on you as a trader unless otherwise stated. IBs get paid out of the spread, so if you use an  FCM  that has a too-wide spread on the EUR/USD,that spread  is  too wide whether you use an IB or not; you just get an extra layer of customer support for the same 2-pip spread. Again, in some cases(which have to be disclosed),an FCM actually may increase the spread to compensate the IB for its referral. I do not allow this to be part of my IB; just check the spreads yourself or ask.

MARGIN-REQUIREMENT RULES

Examine your broker’s margin requirements and margin-call rules carefully. At what level will your position be liquidated should the price take a plunge or rise against your direction’Some brokers will close all positions without  warning,  whereas  others will issue some notification that  the account is near the limit they have set.

LEVERAGE LEVEL

The leverage levels can vary a lot from one broker to another,but they are usually in a range from 50:1 to 500:1. A higher leverage can be somewhat risky but can give you more opportunities to obtain a bigger profit. A small initial capital investment  will  require a higher leverage. (Take note that with leverage  comes  risk,but with risk comes reward and,of course,the potential for loss.)

TRADING PLATFORM

You can find a wide array of trading software among brokers, from simple Web-based platforms to more complex applications that have to be downloaded. You also will find mobile platforms that give you the opportunity to trade or monitor your positions while you are on the go. Practically all brokers offer practice accounts that are an exact replica of the live trading platform so that you can familiarize yourself with the interface  and  test  its features. The platform should be professional-looking and easy to understand and operate. Not all of them have the same tools available, but a good FOREX broker should have at least charts that update in real time, technical analysis tools,and alerting capability. Some of them also include news feeds. When I first started trading, I used one of the most complicated trading

platforms  known  to  humankind,  or  so  I  thought.  I  set  out  to  develop  an easy-to-use  trading  platform  based  on  simple-to-use  technical  indicators

with  color-coded  graphics.  Today,  the  platform  has  many  variations  and

includes  advanced  charting  capabilities.  I  refer  to  it  more  as  a  learning

environment than as a software platform because it has education and training integrated into it. The platform will take a beginning trader and walk him or her right through the various steps to becoming a professional currency trader. There are numerous FCMs out there that are currently using my  technology,and  there  are  more every day. 

CURRENCY PAIRS

A good broker will offer a good variety of instruments to choose from and will provide the currency pairs that interest you the most.A good broker also will have other types of instruments,such as metals,indexes,or commodities,as well as certain exotic currency pairs, which will allow you to widen your options and build a more diversified portfolio.

AUTOMATION CAPABILITIES

Some  trading platforms allow users to run  automated trading strategies through  an external application programming interface (API)or with  its functions integrated directly from inside the software.If you are interested in this trading  style,you should look for a broker that offers automation capabilities that are easy to implement. In addition to the basic requirements that you will have to go through and  examine, you also need to know that there are two major types of FOREX brokers:  the retail brokers or market  makers  and  the  electronic communications networks (ECNs). I have developed a code premiere advisor language (PAL); this allows me  to  integrate  automated  trading strategies into my trading platform,including the ability of the customer to write his or her own automatic strategy or transfer one that may have been running on another system. The wave of the future surely will be automated/program trading. The big institutors have used this type of trading for many years, and now you have the same capabilities.You can find all sorts of trade  robots  out  there,but I haven’t found any with adequate support yet.

MARKET MAKERS

Market makers have a dealing desk.The broker usually acts as a counter part  for almost every transaction made by traders.Brokers  hedge  their own risk by opening trades in the opposite direction for the same amount. Very few orders are sent to their liquidity providers because most of the trades they handle are under the minimum standard lot requirement from the banks.Bigger positions can be hedged in-house,  transferred to another associated market maker,or transacted directly with the liquidity provider through pooling of funds and opening a position directly with the bank. Orders are matched or covered one with another; for example,if one trader is selling and another is buying the same currency pair,any difference in quantities is assumed by the  broker.This often leads to conflicts of interest: When  the trader wins,the broker can lose,and vice versa.To protect themselves, some brokers widen the spreads,use slippage,or even ‘disconnect’ the trading server during heavy volatility caused by economic news.Because of program trading and more retail customers in the FOREX market, most FCMs have found it difficult at best to trade against their customers. What they know, and what you are seeing, is that if a customer sees his or her FCM playing any of these sorts of games (i.e.,wide spreads,off quotes, etc.), he or she simply will leave and go to a new FCM.Thus the FCMs are off-laying their trades directly to the Inter bank, the source of the trillions of dollars of turnover. This allows the FCM to focus on proving the best possible trading environment, one with a lot fewer conflicts of interest.The Inter bank market is so big that it is less likely to be concerned with the average retail trader making money because the amount is so insignificant in the face of total daily turnover.You still will have FCMs managing their books as I mentioned earlier.If you and I took opposite positions on the EUR/USD, the FCM would have a balanced  book,  and  one of us would lose and one of us would make money. The broker makes the spread on both sides. This is an ideal situation for the broker and certainly an acceptable business practice. However,what happens if we both go long the EUR? Then the broker has a unbalance site.Three things will happen: Either the broker will hold the trade and thus trade against the customer, or it will go out into the marketplace to offset the position either in full or at a percentage to minimize its risk, or it simply will offload the transaction directly to the Inter bank. The goal is to have as many customers as possible so that the broker has a better chance of having a balance book and making the spread on both sides.There is nothing wrong with the FCM making money as long as you understand the process  and don’t get manipulated along the way.  Education  and  knowledge are the keys to success. I am happy that you are reading this book and have put your trust in me to help fill that FOREX knowledge you need to achieve success as a FOREX trader.

ECNS

ECN-type brokers do not have a dealing desk.The broker serves as an intermediary to connect traders with the banks but does not take the trades itself. Such brokers usually charge a commission on every transaction because they do not profit from hidden charges on the spreads.They also do  not  manipulate  spreads  and  prices,  those  being the quotes received directly through the Interbank. The spreads are usually lower than those of market makers, and this is an advantage for scalping strategies.However,the spreads are not fixed and can experience huge variations during volatile conditions. An ECN environment  is  conducted  according  to  real  market prices,and such prices can be moving very fast based on the availability of buyers  and  sellers.There is no price guarantee.However, you have the advantage of being able to see the real market with total transparency and actual quotes  and  volume  of  transactions  being  made.ECN operation ismost like the banks at Level II, but the ECN is still functioning as an intermediary.Additionally, you probably  will  need  a  higher  capitalization  for ECN trading because most ECNs allow only full-lot transactions and offer a lower leverage than retail brokers.On the NASDAQ,  when a trader places an order to buy or sell stock they are placed through many different  market  makers  and  other  market participants. Level II is a more detailed look into who has what interest in a particular stock. Level II will show you the best bid and ask prices giving you detailed insight into the price action of the stock. For day traders knowing exactly who has an interest in a stock can be extremely useful.

TOOLS SAFETY REQUIREMENTS FOR ELECTRONIC TRADING

Although it is possible to deal in the FOREX through a dial-up connection,it  is recommended that you have a fast digital subscriber line (DSL)or cable setup, especially if the platform you will be using requires continuous reception and update of data feed. If you are a long-term trader who checks the charts only occasionally and who operates mostly with pending limit or stop orders, this will not be a high priority, but a scalper, for example,will need a stable Internet flow and a fairly huge bandwidth, which will allow a fast connection to and from the broker’s server. The computer itself doesn’t have to possess the ultimate high-tech gadgets, but it should be in optimal condition and properly maintained periodically.A second alternative connection should be considered in case the main one fails. It is good practice to have more than one avenue with which to access your open positions in the eventuality of an Internet failure or even a power outage,especially if your broker  doesn’t offer phone  access. Mobile access is a good option,although not every  company offers that possibility  yet. You could combine your DSL connection  with  a  dial-up,wireless, cable,or mobile backup.Having a power generator or uninterruptible power supplies (UPS) is a must if you live in an area where there are frequent electricity outages.Finally, all the usual safety requirements concerning protection of your data, such as virus protection, antikey loggers, firewalls, etc., should be set up before installing the software and logging on to your real-money account.

USING MULTIPLE MONITORS

Is it really necessary to use more than one monitor to become a successful trader? This will depend on your own trading style and other professional needs.Having multiple monitors (at least two) seems to be a must in today’s busy computer world, where multitasking is pretty much a common practice one  screen  for  the  main  program  with  which  you  are  working  and another one for miscellaneous activities such as chatting, watching videos,listening to music, or accomplishing any other task you need or desire to perform simultaneously.

In FOREX trading, having multiple monitors can be very useful in that you can watch several currency pairs at the same time or maybe just several time  frames  of  the  same  currency  pair  without  having to minimize the charts so that they all fit  on  the  screens,watch the news,follow up your favorite trading group seminar or  live  trading conference,or simply  use your  other  programs  and  Web browser.  However,  you  should  carefully decide whether multiple monitors really represent a positive addition or if,instead, the avalanche of available information is a distraction that hinders your ability to focus completely on what you intend to do. The use of multiple trading terminals, for a very active trader, can justify the acquisition of an  additional  screen,  especially  when  the  trading platform  on  which  you  place  your trades is different from your charting application. Having two or even three monitors allows you to see the charts in a more comfortable way with less eye strain. But how many is too many?

Professional traders usually recommend focusing on one or at best two currency pairs. It is really useful to you to be permanently scanning each and  every  market  available  in  the  expectation  of  the  perfect  setup?  Most often one of the reasons some traders need more monitors is because the charts the use are overcrowded with too many indicators, so they have to watch them full screen to see all the details. Does a bigger size make the charts more readable, though?

 Before you run to the store and buy an additional screen for your equipment,you  really  should determine if all the indicators that you intend to use are absolutely essential to your strategy and trading style.

 Do you manage several accounts at the same time?

I use a laptop just about everywhere I go; at home, it is the only thing I use. I actually place trades and follow numerous currency pairs from my laptop. In addition,I have  paid  subscribers to my FOREX  alert  service,and I both monitor multiple currency pairs and delivery timely trade alerts from my laptop. So you don’t need a lot of monitors or equipment to trade the FOREX. However,on the other side, at my office, my FOREX strategist and FOREX traders use lots of screens. In fact, I think one of them has at least 12 or more screens just for himself. This is a little overboard, if you

ask me, but whatever works, I say. I do like using a multiple-monitor system when  I  am at the office because it allows me to see a lot of things going  on  at  one  time,  but it is not a requirement to be successful in the FOREX market.

THE APPROPRIATE TRADING  ENVIRONMENT

FOREX is a business, and it should be treated as such when you are choosing the location from which you will be opening  and monitoring  your positions.  Although  working  from  home  may  be  more  comfortable  and allow  more  freedom,  it  also  makes  it a little more difficult to separate normal family activities from your business,and this could lead to unfortunate interruptions that could damage your trading results.Your  home  office  should be laid  out  carefully  and  professionally

because you probably will spend several hours a day in it. Thus the furniture  and  layout have to be practical and,above all,comfortable.Take the time to build  your  perfect work space;  it  will  have  a  direct  and  positive influence on your overall mood and attitude at the moment you decide to step into the FOREX market.

WHO TRADES THE FOREX?

The market nowadays has changed from what it was in earlier years, with

technological development and the ability to conduct transactions overseas

with more ease; other financial/nonfinancial institutions are able to participate in the FOREX market as well as individual investors and traders.More than 80 percent of the FOREX market’s  overall daily activity comes from speculation,where transactions occur in a wide range from commercial banks to individual traders. The main players that take part in the FOREX market are central banks, individual banks, commercial companies, individual investors, brokers, and traders who jointly interact in the FOREX market to profit from price fluctuations in exchange rates of currencies by means of  buying and selling currency pairs as a speculative activity. Another reason to enter the FOREX market is to hedge other investments,such as the trading of goods and services.Finally,a few traders look to profit on the overnight rollover amounts that are generated by differences in each currency’s interest rates.Commercial banks perform large transactions daily for their own benefit and also act as intermediaries for their customers. Central banks participate as controllers of the money supply of the respective country,with the aim to help the economy achieve its goals. For example, central banks can operate in the markets to restore the price stability of the exchange rate,protect certain price levels,or when specific  economic  goals need to be achieved,such as the control of inflation or growth.Some of the most important central banks are the U.S. central bank(the Federal Reserve,the Fed),  the  Bank  of  Japan,  the  Bank  of  England,the Bank of Canada, the Swiss National Bank, the European Central Bank,and the Reserve Bank of Australia.Commercial companies can participate in the FOREX market for speculation; to address the need to exchange foreign currencies in their export,import, and touristic activities; and also to be able to hedge their exposure if the home currency is seen as depreciating,avoiding in this way the effects that price fluctuations could have on company stability. Specific types of commercial companies are represented by investment funds or hedge funds, which include all kinds of retirement, arbitrage, and mutual funds, as well as international investments. These firms hedge and protect one investment with another and have been entering more and more into the FOREX scene.Brokers  are  intermediaries  who  allow  buyers  and  sellers  of  foreign currency to interact. They obtain their profits through the spread between the bid and ask prices. As discussed earlier, there are two types of brokers: market makers and ECNs.Finally, traders can be individuals or small groups that perform speculative and investment operations for their own account or as money managers for third persons.

WHAT KIND OF TRADER AM I?

Before starting to put your own real money at risk, it is a good idea to observe yourself and your usual living conditions,as well as your personality, and try several different trading techniques to see which of them will suit you the most. Do you have a lot of free time to dedicate to your trades,or instead, do you already have a busy schedule, maybe a full-time jobor career studies? How much risk capital, which you do not need for a living,can you afford to set apart for your FOREX activities? Ask yourself: Am I a patient or impatient person? Can I perform under stress, or do I have a

short attention span?

Another area to consider is your trading strategy itself. Are you more inclined toward fundamentals and economics? Or, on the contrary, is technical analysis more appealing to your mind structure? Would you prefer to

use a mechanical system or a discretionary approach?

With all this in mind, you can develop a preliminary idea that will allow you to start by choosing a few strategies among the hundreds of systems that already exist and testing the waters on a practice account, comparing the different time frames and how you feel in each and every circumstance,besides  checking  the  system’s  own  performance and results.Maybe then you will want to develop a system of your own with the skills that you have acquired through observation of the markets from several points of view.

TRADING TECHNIQUES

Trading techniques can be divided in two general groups:long term and short term. Below I will provide a summary of some of the advantages and disadvantages  of  those two basic groups before I give a more detailed description of each of the components they include.In long-term trading,traders base their analysis on end-of-day data and look to hold trades for a few weeks or even up to many months. They usually follow the trend. The advantages of long-term trading are that there is no need to watch the markets intraday and that traders perform much fewer transactions, thus lowering any commission costs. In addition, there is no need for using fancy equipment or software because the time spent analyzing and watching the markets is very short.However, long-term traders will need to set much larger stops and will experience large equity swings. Thus they will need to be well capitalized and prepared  for  this  eventuality.  Trades  are  very  few,  and exceptional trades are fewer. Much patience is needed to wait for a trend to develop to its full potential. Losing months can be frequent.In short-term trading traders will depend on the analysis of intraday data  and  aim  to  hold their positions for a few days or up to one or two weeks.Short-term  traders  usually perform swing trading.A shorter-term trading approach is referred to as day trading,where trader try to take small profits  from intraday swings,exiting all positions before or at the daily market close.The advantages of short-term trading are that there are much more opportunities for trades,thus also less chance of experience losing months, and that traders do not have to rely on one or two trades a year to make  money.  With  day trading in particular,since positions  are closed daily,there is absolutely no overnight risk.On the negative side, the cost of their transactions will be higher in short- term trading (traders will be paying more spread). Swing traders also incur in overnight risk. Day traders have to confront more difficulties psychologically because of the frequency of trading and having to monitor the markets constantly. The need to exit positions at the end of the day will limit their profits.

SCALPING

The  main  idea  behind  the  scalping  strategy in FOREX trading is to take very small profits very quickly from very small movements of price,such as 2 to 10 pips. The trades normally are entered and exited within minutes or even seconds. Small profits add up because the number of daily trades can be very high, ranging from 20 to 100 trades on average.Scalping is considered  to  be a risky trading style.However,this will depend on which times of the day and which types of markets are used. Although it is possible to scalp successfully in trending conditions, the best trading times are when the market is ranging inside consolidation patterns.Most of the time,this is so;thus there are plenty of times to choose from to implement  this  strategy.High volatility or news releases are not recommended because of a higher risk involved.The strategy has to be very well determined in advance, as for any trading system,especially  in  terms of risk management.A fast reaction and decision time is paramount, getting out of bad trades as soon as possible with low pip losses.Since  the  trader  will  be  taking many more trades throughout the  session,it is better to take  profits as  they present  them-selves, small pips here and there, not aiming for more because the strategy is to sum up the overall quantity of trades. Scalping is usually performed on very short time frames; thus the average range available is also very small,and one shouldn’t expect more than 5 to 10 pips on average.

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INTRADAY TRADING

Intraday or day trading is a technique that requires all positions to be closed at the end of each day. The number of trades is much lower than in scalping,and although  very short time frames can be used to pinpoint better entries, trades are usually analyzed and performed over short and medium-term time frames,such as 1-hour or 30-minute charts,with 5or15 minutes for entries. Traders can use a variety of technical analysis tools and wait for the appropriate signal or opportunity to open a position. If there is no good opportunity,they can stay on the sidelines and wait for a better chance the next day.

POSITION TRADING

The position trading technique is a strategy in which you increase your position size incrementally as the trade evolves, maintaining the same initial level of risk. It is also called averaging into a position;the trader adds a new position of the same size and in the same direction every time the risk of the previous one can be covered.

For example, you could buy 0.1 lot of EUR/USD at 1.2550 and set the stop loss at 1.2500. Your risk would be of $50. When the price goes up,you buy a second mini lot at 1.2600 with a stop loss at 1.2550, setting the stop  of  the  first  position  at  breakeven  (1.2550).You now will have two mini lots while maintaining your overall risk at $50. If the price keeps on rising, you can buy a third 0.1 position at 1.2650, setting the stop loss at 1.2600,  and  trail  the  stop  of  the  first  two  positions  equally  to  1.2600.Should you be stopped out, all three mini lot trade are now at breakeven!Should the price continue rising, you can buy a fourth mini lot at 1.2700,setting  all  the  stops  for  the  positions  at  1.2650,  which  will  protect  your profits. You then buy a fifth mini lot at 1.2750, setting all the stops as previously, and your protected profit amounts to $250 ($150$100$50,with the fourth mini lot at breakeven and $50 risk on the last position). In this way, you can limit your risk and exposure, which will remain the same in the whole process, and can accumulate great benefits. This style of trading allows you to stay in the trend and is ideal to use in longer time frames such as daily or weekly charts.Another option that can be used is to convert a profitable day trading position into a long-term sequential trade as soon as enough positive points are covered. You can go on adding to the position in the same way explained earlier and reap the profits later on with minimal risk.Position trading should be attempted with small position sizes and no more than 1 or 2 percent capital risk. The advantage of this trading style is that you do not need to monitor the market all day, only check from time to time to adjust the stops and protect the profits already made. This strategy is much less stressful, and you can earn more profit with very small potential losses.

SWING TRADING

Price fluctuations in large moves are also called swings.The price goes up for  a while, and then it goes  back down.  Swing trading is the strategy employed by traders who ride those swings and obtain profits from them. Swing  trades  usually  are kept open for a few days,as long as the swing or trend is continuing. As soon as the price seems to be reaching a top or a bottom,  the  trader  will  enter  short  or  long  the  market  to  profit  from  the expected move.Markets usually range most of the time around 70 to 80 percent of the  market  activity  being  done  sideways.  However,  those  are  “trends within trends” because each side of a sideways move is a small trend in itself and can yield many profits because the time frames used are higher than in scalping. A swing trade usually can give around 100 or more pips per trade.This  strategy  is  somewhat  risky,  though,  because  picking  tops and bottoms is not so simple to do. Sometimes, what is seen as a reversal is  only  a small  entrancement,and the price continues rising  or falling a short  time  after, which  will  cause  huge  losses  if  it  is not estimated carefully. The accuracy in determining if the market has reached a peak or a  trough  will  benefit the trader’s use of  several  technical  analysis tools and in evaluating the ranges that the market usually develops in the time frame used.

A solution to this is to ride the middle of the swing, without trying to enter at the very top or bottom. The swing will start going in one direction and then will retrace a little, and this is the best moment for an entry.

NEWS TRADING: STRADDLE

A straddle is the action of placing both a buy and a sell pending stop order

above and below the current price. No direction is expected, and the trader

prepares for the eventuality of a move either way. Straddles are used commonly in news trading and are implemented before the outcome of a news release kicks in. All the usual elements of trading are set up in the straddle,such as stop losses and target prices. OCO orders, where available, can be used so that whenever one of the trades gets triggered, the other one is automatically canceled.This  technique can be used on breakout expectations  and in various other ways,such as,for example, based on the cross of either side of a particular moving  average. Straddling  involves  some  maintenance because orders that haven’t  been triggered yet need to be updated  periodically as prices  and  conditions  evolve. Besides, it is important  not  to  leave  active pending orders behind that are not needed any more. This is a mechanical approach that doesn’t need a great deal of analysis; the market will move either way, and  the  trade will be managed accordingly  when triggered.Orders are placed in the same way and at the same time by the rules of the chosen system,and the trader will only have to wait until any of the options gets effectively on the market.Straddle trading is very useful during undecided market conditions,after long periods of consolidation,and of course,before fundamental announcements.It is often used to trade the news  because of the  difficulty of  predicting  such a move and also because entering in a highly volatile market sometimes can be totally impossible, whereas a stop order usually should be filled at the price chosen. However, straddles also are very risky because both sides could be stopped out in a big swing reaction, so the stops and targets have to be planned very carefully and set at precise levels.Straddle-based trading systems can b  very appealing to traders  who don’t have much time to spend at their computers.

THE TRADER’S LEVELS OF ASCENSION

In the process of becoming a professional FOREX trader, there are five levels through which it has been proved that practically everyone will have to evolve. Sometimes you might think that you have reached a higher level,just to find yourself again at level one or two. I like to use the following as a way to help determine where you are at a certain point in your evolution as trader. Assume that you are on your way to my office building to work with me as a professional currency trader. When you get to the lobby, you find out that all the professional traders in my office are on the fifth floor.The problem is that there is only one way to get to the fifth floor, and that is to work your way up.Obviously, you have made your mind up that trading currency is something you want to do, and you have committed to by investing in this book. So you decide to take the journey and start off on the first floor.

FIRST FLOOR: YOU DON’T KNOW THAT YOU DON’T KNOW

What is the first thought that attracts people to FOREX trading? The magic

promise of making money fast and easy and being able to live a life of luxury. Maybe it is only the desire to quit a boring and demanding full-time job or to earn a little more in order to pay off all one’s debts and thereafter retire in a more comfortable financial situation.Prices go up, and then they go down. It seems easy. Besides, there are a lot of success stories, real or not so real, of millionaires who got their for-

tunes through currency speculation. All the glamour and hype built around the financial world are amazing! Then you open your first account, probably test the waters a little on a demo account, but what you really want is real money. Practice accounts are most often left aside and seen as boring and useless for your immediate

purposes.  You  don’t  even  bother  to  understand  what  all  those  “technical

indicators” on the trading platform are for. You just need to know where to

click for buying and selling that’s all.So there you are, clicking away on your path to total financial freedom! You take trade after trade, risk after risk. You probably don’t even use a stop loss! You become overconfident and start risking greater amounts of money to accelerate its multiplication. So simple it is! The price goes up, you buy;

the price goes down, you sell. What could go wrong? If you fail to plan,then  you  have  planned  to  fail.  With  this  attitude  and  mind-set,  you  will guarantee yourself failure, not just in trading the FOREX but also in life.The  good  news  is  that  all  you  need  is  a  little  knowledge,  and  with  that knowledge, you can begin to see what all the fuss is about, for then you will graduate and move up to the next floor.

SECOND FLOOR: YOU KNOW THAT YOU DON’T KNOW

You start opening your eyes and look around for answers that will explain to

you  the  reasons  for  your  recent  failures.  You  become  aware  that  you  need

more training and education. After all, you want to make this a full-time professional and stop working that endless low-paying job or retire and control your  own  financial  destiny,  one  that  will  allow  you  to  produce  a  constant profit. You start surfing the Internet or the local book store, looking for trading formulas. You want to know more about each and every indicator that is available on your platform, trying them all at once, transforming your charts in a Picasso-like spaghetti mix.Your quest for the FOREX Holy Grail has just begun! You subscribe to a FOREX forum and jump from thread to thread, looking for the best system that makes the greatest number of pips. If you have enough money to spend,  you  believe  every  snake-oil  peddler  and  buy  every  automated  pip machine  that  is  advertised  on  the  Web  in  the  hope  that  next  month  your account will finally be approaching the five- or six-figure mark!Every day you happen to find a new “perfect system” that will only last until  you  try  the  next  “Can’t  lose!  Guaranteed!”  one.  You  don’t  have  the

patience  or  discipline  to  find  out  if  they  really  work  because  you  expect

them to start producing pips per minute, and because they don’t, you keep

on your endless search. Every new indicator is “the one.”Every new system is the Aladdin’s lamp that you will rub and rub away in the hope that cash will start flowing like a river into your bank account.You  will  chase  the  market,  pick  tops  and  bottoms,  and  draw  channels,trend lines,  and  Fibonacci  retracements  until  price  can’t  be  distinguished any more on your charts.Trying and failing one system after the other, frustration will accumulate, and anger will come into the picture. You will ask for advice but will not listen to it because “you know better.”Overtrading,over leveraging, and overconfidence  will  make  you  risk  much  more  than  what  prudence  dictates.Then you’ll seek again for more  signals,  automated  systems,and other traders’ calls until you end up exhausted and totally confused because nothing seems to work. You will start thinking that maybe the FOREX is not for you, and maybe you give up and quit. But don’t despair, the FOREX is an exciting  market,and many traders profit beyond their dreams.You simply have to take the bull by the horns and get the education you need to move up to the next floor.

THIRD FLOOR: AWARENESS

All of a sudden, you start realizing that the issue might not be the system,

but you. You understand that each and every trader who is successful may

have different strategies and styles, but there must be something that connects  them  and  represents a common  denominator.You can see now that there  just  may  be a reason all those traders on the fifth floor  are  driving fancy cars and living the life they have always wanted. Now it’s your turn.You  start  immersing  yourself much deeper into money  management and  investigate  more  about  trading psychology,identifying the traits that are  slowly  producing a global  understanding of the whole picture.You become aware that it is not possible to predict market price moves. You stop looking outside for the answers and start finding them on the inside.You begin developing your own personalized system and integrate all that you have learned before, adapting your trading style to your own personality, time, and needs. You start getting positive results with the change.Your greater accuracy in money management allows you to have a happier attitude about losses because now you are confident that it is only a part of the trading business.If you get into a bad trade,you will close it and move on.You  have tested your system, and it has proven to work. You know it well, and you stick to your plan with discipline. It’s  really  on  the  third  floor  that  traders  figure  it  out.  I  teach  lots  of classes  all  over  the  country,  and  my  most  successful  traders  are  the  ones who  travel  to  my  offices  to  take  their  classes.  Why?  Because  they  have made  it  to  the  third  floor.  They  realize  that  it  is  time  to  invest  in  their FOREX trading future. It’s not just a good trading platform; it is the education, training, and support; it is the network of other traders with whom you can discuss training ideas; and it’s the team that gets it.Think for a moment: How long does a doctor, lawyer, or engineer have to go to school to learn his or her trade? And that is just to be an entry-level person. Think about how long a doctor has to go to school: four years for college, four years for medical school, a few more years for specific specialty,and then,what,two years of residency,then  and  only the to be a full-fledged  doctor  earning  decent  money.Well,what  happens  when  the doctor goes on vacation? Nothing; they don’t get paid.A currency trader controls his or her own future; a trader can work from anywhere. Traders can be in a trade making money while at the beach or on a golf course, fishing, whatever.But you will only get out of this what you put into it. You will have to find a mentor and start learning. Some of you will pick it up faster than others, but in the end, you can make it to the next floor.

FOURTH FLOOR: KNOWING THAT YOU KNOW

Now you’re on cruise speed. You follow your system and rules, you have developed a trading plan, and you take losses and wins without letting emotions run over you. You will get to break even most of the time, having winning periods and then losing  periods, but in general,most of your  trades will be good, and you will not be losing money. Gradually, your win-loss ratio will increase consistently. You put your time in and now have a decision to make. Are you ready to quit your boring job, maybe retire early, and take on the status of FOREX trader? You are confident that you can make the money. The next step is yours. See you on the fifth floor.

FIFTH FLOOR: BEING A PROFESSIONAL

You made it the secret society of professional FOREX traders. You look around, and it is not so unfamiliar to you. You have seen some of these same people walking around before. They are people you have passed in the hall ways of life,people who have made the  same decision you have,people who have decided to take charge of their financial lifestyles and do something about it. They didn’t give up on floors one and two. They kept going.Now you find that your skills are totally  integrated,  and  you  follow your trading  routine  every  day on  an  unconscious  level.  You  watch  the charts, and thanks to the endless hours of screen time, you now “know” and understand how the market moves.You start making more profitable trades, and the daily outcome doesn’t take you out of control, whether you lose or win. Your account starts growing, your emotions are reasonably under your command, and above all, you are at peace and can trade without stress.You keep on refining your own trading system so that it evolves with every  market  change. You keep an eye on risk and reinforce  discipline.Trading is now just like any other job, sometimes maybe a little boring, but you have mastered all that it takes to get the profits you have planned on. You can make money in the FOREX,  and  you  can  lose  money  in  the FOREX. It is not an ATM machine for which someone will send you a PIN number so that it will start spitting cash out at you. You have to work at it. I  have  traders who have been with me for many years who are very  successful. Ninety-nine percent of the traders I’ve seen who have lost money did so because of poor discipline, no patience, and just plain greed, and they didn’t listen to all the education, training, and support they were getting or that  was  available  at  their  fingertips.You have to go  out  and  build  your FOREX know ledge if not from me, then from someone else but this is a real market,and it is wide open for you to make of it what you will.

the source by :  JAMES DICKS