I know this is a little bit of back tracking, but I think that Forex Trading is a great home based business to be involved in. As has already been discussed in this blog the Forex exchange is the biggest financial market around the globe traded by millions of currency traders daily. According to the BIS study Triennial Central Bank Survey 2004, average daily turnover in traditional foreign exchange markets was estimated at $1,880 billion. That was in 2004, it's even bigger now.

Why choose Forex Trading online as your favorite business model?

• Make money from the comfort of your home.
• Operate your online business from anywhere.
• The currency market is open 24 hours a day => work whenever you want.
• Successful currency traders earn BIG PROFITS.
• No worries about a part- or day time job
• No inventory to manage.
• No customer support.
• No employees.
• Low start up costs.
• YOU ARE YOUR OWN BOSS.

Ok, I am interested. How much does it cost to get started?

All you need is a computer and a stable connection to the internet. That's the only cost.

What do I need to know about Forex?

Before you open a LIVE Forex Trading account with a broker, you need proper education and a free Forex Trading demo account to start practicing Forex trades that you have learned. As with anything in life, if you wish to become a successful currency trader you must invest the necessary time. It is extremely important to have a good understanding of this market before going live.

For example: Do you know what a pip, forex chart, mini account or margin call is? To succeed as a currency trader, you must have a very good understanding how the forex market works, without a strong foundation of forex core market knowledge, you can never take yourself to the next levels of currency trading. If you have been following this blog or have just started most of these topics have been covered already. If you are new, start from the beginning of this blog and read though it. I will be adding to it and trying to cover most of the topics as I understand them as the blog grows.

Avoid Making Predictions in the Market

Most people make a big deal out of market prediction. They think they need to be right 70% or better in order to "pass" the exam that the market gives them. They also believe that they might get an "A" if they could be right 95% of the time. The need to predict the market steps from this desire to be right. People believe that they cannot be right unless they can predict what the market is doing.

Among our best clients, I have traders who continually make 50% or more each year with very few losing months. Surely, they must be able to predict the market very well to have that kind of track record. Well, I recently sent out a request for predictions and here is what I got back from some of the better traders.

Trader A; "I don't predict the market, and I think this is a dangerous exercise."

Trader B: "…these are just scenarios, the market is going to do what the market is going to do."

Ironically, I got these comments from them despite the fact that I was not interested in any of their specific opinions, just the consensus opinion.

So how do they make money if they have no opinions about what they market is going to do? Well, there are five critical ingredients involved:

• They follow the signals generated by the system.
• They get out when the market proves them wrong.
• They allow their profits to run as much as possible—meaning they have a high positive expectancy system.
• They have enough opportunity so that there is a great chance of realizing the positive expectancy any given month and little chance of having a losing month.
• They understand position sizing well enough so that they will continue to be in the game if they are wrong and make big money when they are right.

Most traders, including most professionals, do not understand these four points. As a result, they are very much into prediction. The average Wall Street Analyst usually makes a large six-figure income analyzing companies. Yet very few of these individuals, in my opinion, could make money trading the companies they analyze. Nevertheless, people believe that if analysts tell you the fundamentals of the marketplace, someone can use that information to make money.

Others have decided that fundamental analysis doesn't work. Instead, they have chosen to draw lines on the computer or in their chart book to analyze the market technically. These people believe that if you draw enough lines, and interpret enough patterns, you can predict the market. Again, it doesn't work. Instead, cutting losses short, really riding profits hard and managing your risk so that you continue to survive is what really makes you money. When you finally understand this at a gut level, you will know one of the key secrets to trading success. In the meantime, we will continue to make predictions in our column, so that you will begin to understand that they are entertaining, but nothing more.

Destructive Patterns in Trading

I know, I know, The last two post have been articals by other people. As I keep trying to do is one teach, teach by learning myself, and then in my blog pass along the things that I think new or even experienced Traders would like to know. If anyone is reading or paying attention I would like if you left comments on how I can make things better. Help me help YOU!


Before we get into the topic of destructive trading, allow me to explain how psychologists assess whether or not a person has a problem with alcohol consumption. Here are ten questions that a professional might ask in order to assess any kind of substance use disorder, including alcohol abuse:

1) Have you found that your drinking is bringing unwanted, negative consequences?

2) Have you recently felt guilty over the way you have been drinking?

3) Do you find you need to drink more just to get the good feeling?

4) Do you find that your personality changes when you drink excessively?

5) Do you find it difficult to take a break from drinking, even when part of you knows that this would be best for you?

6) Do you find yourself drinking to feel good about yourself?

7) Do you sometimes feel that you cannot control how much you drink?

8) Do you find yourself getting angry when someone close to you questions your drinking?

9) Do you find yourself vowing to limit your drinking, only to slip back into overdrinking?

10) Do you find it difficult to not drink given the opportunity, even when the occasion is not really appropriate?


Now for the topic of destructive trading: Please answer the above questions, but substitute the word “trading” for “drinking”, and substitute the word “trade” for “drink”.

Fear and greed are potent influences on trading, but the greatest trading problems, I find, are addictive in nature. Successful traders really want to trade; they have a passion for trading. Addictive traders need to trade; they have a passion for action and excitement.

An addictive trader will not manage his risk. That is because risk is part of the high.

An addictive trader will not stop trading, even when losing money. That is because action, not profit, is the goal.

An addictive trader will cycle between periods of guilt and responsibility and periods of excess and irresponsibility.

Good traders trade actively. Addictive traders overtrade.

If you see yourself in this profile, do the right thing, before your patterns ruin your career and harm those who depend on you. Get help. You can change. Your trading and your happiness lie in the balance.

About the author
Brett N. Steenbarger, Ph.D. is Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University. Dr. Steenbarger is an active trader and author of The Psychology of Trading (Wiley, 2002).

Oh, Crap! I just lost all of my money.

I found this article and thought it would be an interesting read so I hope you enjoy and learn something from it.


5 reasons why it happened.
5 reasons everything is going to be okay.
So you lost some money on the foreign exchange.

You are now in good company. You’re also probably feeling, at least initially, three things:

Panic about: The Future
Desire to give up
Temptation to get revenge

Don’t panic.
Don’t give up.
Do get revenge.

I’m here to help! This article can help explain what happened, and set you back on the track of success. Please don’t listen to your deepest fears, and don’t listen to your desire to give it all up. It’s bad, yes, but it’s not as bad as you think. Losing money is the easiest (and hardest) way to learn the path to discipline and success in trading foreign currencies.

All of us – every successful trader I have ever met – had to learn the business this way.

The unsuccessful traders are the people who stopped where you are right now.

So, if you want to join the ranks of the successful traders, read on – and determine right now that you are not going to give up. The next sections will tell you why it happened, and what you have to do next.

Why it happened: Reason #1
You risked too much on one or more trades.

You probably started trading currency for the same reason I did: to make money. While that’s a worthy goal, and one that you’re likely to reach, it’s just not wise to try and make a year’s worth of profits in one trade.

Most of us, at one time or another, have risked 50% or more of our account on one or more trades. Most of us try that on our demo accounts, and then we start to feel invincible (look! See what I can do! I can double my money in just a week!). Of course, this led you to try something similar in your live account. That was a bad idea (but you already know that now).

Solution: Never risk more than 1% of your account on a single trade. Preferably less.

This is a money-management solution. If you don’t put a lot of money on the roulette table, you can have a lot of your money taken off the roulette table.

Why it happened: Reason #2
You didn’t set an appropriate stop loss.

Setting a stop loss is like zipping up your pants in the morning. It’s not required, but you can feel really embarrassed, really quickly, if you don’t do it. To tell you the truth, you could conceivably set a stop loss 100 pips wide just to get 10 pips. If you are not risking more than 1% of your account on the trade, it doesn’t much matter. I have done this before. I don’t do it any longer, because that is a dumb risk:reward ratio. The point here is that you must set some type of stop loss so that if the market really gets wild, that you don’t get crushed.

Why it happened: Reason #3
You traded on emotion, not on reality.

You and I sometimes get a good string of trades put together, and then we start walking around like we’re the Warren Buffet of forex (we’re not). A good thing to remember at a time like that is this: you are not the Warren Buffet of trading – and the longer you keep up that attitude, you’re more likely to end up looking like the ENRON of forex. Bring yourself back down to earth before every trade. Make sure you take your time before every trade. Make sure that if you’re making what you believe to be a “sure bet,” then you better not risk more than 1% of your capital and set appropriate stop loss orders. Especially at the beginning of your trading career. You can start to risk more when you learn more. When you have a track record.

Why it happened: Reason #4
You have just opened an account with real money.

Your first trades with real money are the most amazing opportunities to lose money. You and I both did it – one week after I opened my first live account, I lost 90% of my account. I felt like crawling under a rock. Or smashing my head with one. It’s like magic: open a live account, lose money.

Realize that no matter how good you were on a demo account, you’re going to trade on emotion as soon as you open a live account. Mostly, you’re going to feel afraid to follow the same hair-brained strategy that you used when you were on the demo account. Here are five ideas that will help you avoid this:

1. Open your next live account with $2,000 or less. Trade for less than $1 per pip.
2. If you built a strategy / system while on a demo account, use it! It worked then, right?
3. If you didn’t build a system already, use that new small account to build one.
4. Don’t be afraid of losing money. Be afraid of making stupid trades.
5. NEVER, EVER, EVER, EVER trade when you’re emotional.

Why it happened: Reason #5
Something weird happened.

Well, it’s true: sometimes the market does things that it’s not supposed to do. Take Japanese intervention in the Yen – it’s not supposed to happen in a perfect world, but it does, and it can really throw off your perfect short trade. These are the unpreventables, as I call them, and they don’t happen as often as we suspect. When you get burned by a totally unpredictable movement in the market, just sit back, relax, and ask yourself: did you only risk a small amount of your capital? Do you have a stop loss? Is there any chance the trade is coming back in your direction?

It’s going to be OK. (And here’s why.)

Why it’s okay: Reason #1
You’re going to learn why you lost money.

If you lost more than 10% of your account on one trade, then you did something wrong. You goofed. It’s okay, just don’t do it again. Take a day off from trading. Step back.

1. Write down why you entered the trade.
2. Write down why you exited the trade.
3. Write down what you should have done differently.

NOT studying your worst moments is like smashing your thumb with a finger, and then smashing it again. And again. I have worked with traders who have been making the same mistakes for more than a year – have blown more than one account – and then when they spend a week studying the reasons for their trades, they become profitable traders.

YOU HAVE TO STUDY YOUR BAD TRADES. YOU HAVE TO LEARN FROM THEM.

IF YOU DO, YOU WILL START MAKING MONEY.

Why it’s okay: Reason #2
Write down why you entered the trade.

Did you enter the trade on a spur of the moment, emotional feeling? Write everything down. If you feel like you did everything right, that you entered the trade for all the right reasons, then maybe you didn’t stay in the trade long enough. If you have NO IDEA what happened, maybe you should write me – or someone who has been trading longer than you have. Ask them to look at the charts. Ask them what you could have done differently. You should get in the habit of keeping a trade journal. The journal should include the following information:

1. Time of entry and type of trade (Buy, Sell, Pair, Lot size). Stop loss and limit orders.
2. WHY YOU ENTERED THE TRADE. For example: “5 EMA crossed below the 30.”
3. Time and price of exit, and any gain/loss.

Why it’s okay: Reason #3
Write down why you exited the trade.

Many traders who give a reason for a trade entry don’t give a reason for the exit. The best reason to exit the trade is that it’s profitable and you want the money in your account. The worst reason to exit a trade is because it’s going against you and you don’t know what else to do.

You have to have a plan for the trades that go against you! Before you start trading as a career, or with any substantial money, you should make a plan for what you’re going to do if a trade goes south. Some questions you need to answer:

1. How far am I willing for this trade to go against me? Sometimes traders set a stop loss that’s too wide or not wide enough, and then they disregard it anyway.
2. What are the criteria for realizing that the trade was not a good idea? Here, it’s not enough to say, “I’m losing money.” I mean, if you enter trades on an oscillator or indicator, do you exit based on those tools as well? What signals are given for a trade exit?
3. Under what circumstances will you raise or lower your stop loss and your limit orders?

Why it’s okay: Reason #4
What would you have done differently?

I once got a bad haircut: at the end, nearly all of my hair was gone. I vowed to never let that happen again. Talk about (with a friend who trades) or write down what you would have done differently. Would you have avoided entering the trade altogether? Would you have waited longer – for example, if the position eventually turned profitable, you have learned that sometimes the only thing separating you from profits is time. Would you have double-checked the indicators? Would you have looked closer at candlestick patterns? Asked an expert?

Once you decide what you would have done differently, then find someone who can help you keep your goal to act differently next time. Find a fellow trader who will double-check your trades. Set goals and get someone to help you keep them. Trading requires discipline and you can increase your discipline by working together with someone.

Why it’s okay: Reason #5
Get revenge.

Now create a list of goals for your forex trading – make the list as short as possible, but you should probably include as one of your goals “Never make the same mistake I just made ever again.” Once you’ve written your goals, you should also consider making a complete trading plan. That plan would include rules that you follow on getting in and out of trades, indicators that you watch, and maximum losses that you are willing to withstand before exiting a trade. It would also include a method for follow up (including your trading journal).

Now, take those goals. And implement them. Get mad about your loss. I hate losing money. Hate it as much as anything else. Do you? If so, channel that anger and become more disciplined. Channel it and develop new goals. Channel it and commit to change your trading habits so that you can make money. Don’t be afraid to get revenge. But, as a good leader in battle, plan for it. Study it out. And then attack.

Conclusion

I’ve said it before in other places.

You can become a highly profitable trader. You can even support yourself and your family on the profits. And you don’t have to start with a lot of money. You can even start with as little as a few hundred dollars and build it up over time. Most importantly, it’s not how much you start with, it’s how well you take care of what you’ve got.

About the author

Rob Booker is an active proprietary trader, money manager and forex educator. Mr. Booker has trained hundreds of forex traders around the world, assisting them with developing their own trading systems. But more importantly, Rob focuses on helping traders deal with the mental, psychological, and discipline issues related to trading.

Forex Trading Software

One of my goals with this blog is to help anyone I can understand Forex Trading. Also, I will at times try to help with things such as finding products that may help either teach or actually help in Trading in the Forex market place.

Improvements in Forex Trading software in recent years have made trading not simply a great deal easier but also a great deal more profitable, especially for the newcomer to the world of foreign exchange trading.

Today there are two different types of trading software in use - 'service-side' software and 'client-side' software. Service-side software is operated by a broker and you use the software by navigating to the broker's website and logging in to your forex trading account. The great benefit of this type of trading software is that your broker is responsible for installing, maintaining and updating the software and you do not have to worry about any of the technical 'back-end' problems. On the other side of the coin however you are also restricted to using this software as it has been configured and do not have a great deal of flexibility in how you operate it.

Client-side software by contrast is installed on your own computer and you can mix and match different software package and configure them to work just as you like. You do however have to install them yourself, or have someone install them for you, and will also have to configure, maintain and update them.

For most novice traders service-side software is the obvious choice and you can move on to client-side software packages as your level of knowledge and experience permits. The most important thing however for any trader is to pick the software which provides you with the information you need and does so in a way which is easy for you to find your way around and trade quickly and efficiently.

Trading software must for example give you an overview of the market so that you can spot trends and opportunities as they arise in real time and then allow you to focus in and receive detailed information on particular currency pairs with constantly updating real-time prices, as well as historic price data. It also needs to allow you to follow the movements of several different currency pairs at the same time and to open and close trades at the click of a mouse.

Most important of all your software must provide you with the tools that you need to analyze the market and, nowadays, perhaps the most powerful of these is charting software. Almost all traders today rely heavily on technical analysis to predict future currency movements and the currency chart lies at the very heart of technical analysis.

One other very important consideration is that of security. Security is an important issue whenever money is concerned and this is especially true when you are working over the Internet. Any system which you use for trading must be operated in a secure encrypted environment and the system must be fully protected and continuously monitored.

Finding the best Forex Trading software system is not easy and will take you a bit of time. It is however the main tool of your trade and so do not simply accept the first system you come across and work with it, good or bad. Look around, seek advice and find a system which suits you and which helps you to make money, rather than frustrate you in your efforts. Now after saying that, I will suggest a system that I feel works real well. I happen to use it and like it a lot. You should always look around and make you own choice. The system that I like is the one you see advertised at the top of the page. Easy Forex

The Concept Of Leverage And Margin In Forex Trading

What is leverage?

One of the main attractions to Forex Trading is big leverage that allows currency traders to borrow money and use that money to to profit from the fluctuations in exchange rates between two currencies. The leverage used in Forex Trading is one of the highest that traders can obtain. A leveraged trade means that you are not required to pay the full value of your trade position, only a small part of it. Because of the amount of leverage in Forex Trading, traders are able to make large investments without a huge amount of capital. Not like in other financial markets such as the stock market, were investors have to pay 50% of the full amount for each share they invest in.

Forex Trading provides much more leverage than stocks or futures, allowing positions to be leveraged up to 100:1 or even 200:1 depending on the Forex broker and the size of the position taken. This means that if a currency trader wanted to buy a “lot” worth $100,000, with 100:1 leverage, the trader only has to put a $1,000 of his own money into his margin account! With leverage, you can achieve higher returns on small market movements.

What is margin?

In Forex Trading, margin is the minimum required balance to place a trade and is a performance bond, or good faith deposit, to ensure the currency trader against trading losses or falling into a negative balance. This deposit, called margin, is typically 1% or .5% of the value of the position. The margin requirement allows traders to hold a position much larger than the account value. For example, if you want to purchase $200,000 of EUR/USD at 200:1 leverage, the amount of money required is .5%, or $1000. The other $199,000 is collateralized with your remaining account balance. You pay no interest.

What's the relationship between margin and leverage?

Leverage and margin are directly related in the way mentioned above. The amount of leverage a Forex broker gives to a trader defines the amount of margin that the client will have to commit in order to take a position in the market. For example, when leverage is 100:4, the “4” in the leverage ratio signifies the amount of capital the customer has invested of his own money, which is also known as the margin. There are risks when leveraging your money. Without the use of risk management, a high degree of leverage can lead to large losses as well as gains. Risk management tools when Forex Trading include the use of limit, stop-loss and trailing-stop orders.


What is a margin call?

A Forex broker will close your open position(s) immediately if the equity in your trading account drops below the margin requirement. This is to prevent you from dropping into negative account balances.

For example:

Assume you have a trading account with $20,000 and margin requirement is set to 100:1. Without any open positions, your usable margin is $20,000.

Getting a margin call scenario:

You use $15,000 to buy 15 lots of EUR/USD, you now have $5,000 of usable margin left. This means that you are allowed to lose $5,000 on the open postion before you are under the margin requirement.

Formula: Usable Margin = Equity – Used Margin

In the event EUR/USD moves in the opposite direction of what you believed would happen and you don't close your position to prevent you from further losses, the broker will automatically close it when your usable margin is $0. You would have lost $5,000 on this trade and the EUR/USD only moved 33 pips against you.($5,000 usable margin /(15 lots x $10/pip))!

Conclusion

Leverage is a double-edge sword and can lead to large losses as well as gains, trading big leverage can be fun because it dramatically increases your buying power BUT in the event a trade moves in the opposite direction of what you believed would happen, it can cost you a lot money. Use risk management tools such as limit, and stop-loss orders to prevent you from getting margin calls.

Types of Forex Trading Accounts

In my last post I made mention of a mini trading account. I thought that at this time it would be a good idea to go over the three basic types of Forex Trading accounts. There is the Mini account, Standard account, and the Non Deal Desk account for trading in the Forex market.

Mini Forex Trading Account

Now days a mini Forex trading account is the most popular of the Forex Trading accounts. It is designed for traders who are new to the currency market or those who can't afford to open a standard account. It is the most popular type because it allows you to trade smaller contract sizes, 1/10 th the size of the normal standard account and leverage can go up to 200:1. You no longer need a lot of money to trade Forex and most brokers offer you a mini account starting at $250-$300.

Who should trade a Mini?

• If you are new to the currency market
• Account balance is below $10,000 - $15,000
• Want to try out "new" strategies under real time market conditions

Standard Forex Trading Account

A standard trading account is designed for the more experienced currency trader, these types of trades have contract sizes of 100,000 units, 10 times more than the size of the mini Forex Trading account. If you want to make a living Forex Trading, this should be the type of account you trade! Lots of money can be made BUT without good risk management, lots can be lost.

An example: A trader opens 1 standard lot EUR/USD($10/pip).

Q1 How much does the trader gain when the price moves 100 pips in his favor?
Q2 How much money does the trader lose when the price moves 100 pips against him?

Answer1

1 standard lot = $10/Pip
100 pips = $1000
Trader gains $1000

Answer2

1 standard lot = $10/Pip
100 pips = $1000
Trader losses $1000

Please Note: Most brokers allow you to trade up to 100 standard lots if your account size is big enough to handle that kind of trade.

Who should trade a Standard Account?

• Someone with an account balance above $10,000 - $15,000
• Experienced Forex Trader
• Someone who wants to trade for a Living

Non Dealing Desk "trade against banks" Account

Warning... this is for the professionals ONLY! This type of account allows you to trade against banks, trade inside the Bid and Ask and move in and out positions VERY quickly (scalping). At a later time I will get into what scalping is and how it is used. But for now just understand that unless you are a professional and really know what you are doing, you should look at one of the other types of Forex Trading accounts.

Who should trade a Non Dealing Desk "trade against banks" Account ?

• Professional traders ONLY
• Experienced Scalpers