Forex Daily Support Resistance Levels. What Are They?

Forex Daily Support Resistance Levels. What Are They?

If you are new to Forex trading you may never of heard of one of the most important tools in our trading toolbox, support and resistance levels.

Please let me try to explain what Forex daily support resistance levels are.

If you trade using Japanese Candlesticks as I do, and I strongly recommend that you do the same, then you will begin by looking at a trading chart that looks something like this.

Now that is all very pretty and colourful but what is it telling us about the current state of the market price?

Well, if you are using the same colour coding as I recommend then you can see when the market price is rising, green candles and when it is falling with the red candles. Apart from that not much else which will help us make a trading decision.

When you are just using a chart like this then trading opportunities do not jump out at you from the screen. What you need are some tools to make what is happening with the price movement make a little bit more sense.

This is where support and resistance levels come into play.

As the name would suggest these levels highlight on the chart where the price has reached around about the same price at the bottom of the market, we call this support and at the top of the market which we call resistance. This is shown in the diagram below.

 

 

So How Do They Actually Work?

Now, if we look at this chart in more detail, reading from left to right as time progresses, we can see the following:

The price rose up to the price shown by number 1 then fell back again. It then rose again to almost exactly the same price and stalled again at number 2. It then recovered and passed straight through and reached price point 3 before falling back.

The price found what we term resistance at points 1 and 2 at different times.

As the price continued to fall from point 3 it stopped falling and rose again at point 4, it then briefly rose again before returning to the same price shown by point 5.

This time the price found what we call support at points 4 and 5. Please note the very important fact that the resistance met at points 1 and 2 and support found at points 4 and 5 all happened at almost exactly the same price.

This is no coincidence!

Now, once support has been found at point 5 the market price shoots off upwards passing straight through the previous level of resistance at point 3 before reaching a new high price.

The price then falls again before once again interacting with a previous level of resistance at point 3 to find support at point 6.

To finish up with this very good and typical example points 7 and 8 interact with previous levels of support and resistance.

The reason this is so important to us as traders is that we are looking at potential breaks of these support and resistance levels as trading opportunities.

Just by adding 2 lines to this one chart we can see that 4 potential trading opportunities presented themselves.

A break of the support level after point 2.

A break of support level at point 3 between points 5 and 6.

A break of previous support/resistance level at points 3 and 6.

A break of that same level as the price moved back up after point 7.

Now you have to understand that these support and resistance levels do not actually exist in reality, they are artificial lines which we draw onto the chart to highlight recurring price levels.

However, despite that fact that they do not exist pretty much every trader trading at the time will be using them as a trading tool.

That is what makes some so important.

Now I realise that I may have gone into a lot of detail there trying to explain fully what the chart in the example was showing us as traders.

The bottom line is that we begin by looking for points where the price stalls, either when rising or falling, a number of times at the same price. We then draw a line on our chart showing either resistance, support or both.

We then watch the price action for confirmed breaks of these lines which will present us with a potential trading opportunity. You will notice I hope that I always refer to them as potential trading opportunities.

Sometimes the price will pass through either a support or resistance level a small amount but then move back inside. What we are looking for is a confirmed break of one of these levels. That is when we get interested in placing a trade.

I really hope that at least some of this has made sense to you. As always please feel free to comment or ask any questions that crop up.

 

 

Best Currency Pair Trade. Is There A Best Pair?

Is There Such a Thing As A Best Currency Pair Trade?

With so many different currency pairs available to trade in the Forex market how do we decide which is the best currency pair trade when we first start?

It will probably help if we start by breaking them down into three basic groups, this will help to get rid of some of the currency pairs straight away and make our decision a little easier to make.

Majors, Minors and Exotics.

Virtually all of the currency pairs we can Forex trade in belong to one of these three groups.

Majors.

 

The Major currency pairs are the ones which include the US dollar, or USD as it is known, in the pair. For example USD/EUR (Euro) or USD/GBP ( Great British Pound) and so on. These are the most traded pairs and therefore the currency pairs with the most market movement each trading day. As they are so active they also attract the smallest spreads which is important to us as traders and something I will explain in more detail later.

Minors.

 

The Minor Forex currency pairs, sometimes also called cross currency pairs, are the more widely known currencies apart from the USD. These would include EUR/GBP or GBP/CHF (Swiss Franc) EUR/AUD ( Australian Dollar) and so on. These currency pairs do not have as much trading action on a daily basis but are still worth looking at as there are some good profits to be made for the trader prepared to look into them fully. The spread on these pairs is usually larger than the Major pairs due to the decreased market movement.

Exotics.

The Exotic Forex currency pairs are formed from the currencies of emerging and smaller countries, in financial terms, such as Brazil, South Africa, Mexico and Korea for example. These currencies are not traded that heavily and are best avoided by all but the most experienced traders.

My advice to anyone just beginning to trade in the Forex markets would be to stick to working with 3 or 4 of the more active currency pairs until they have gained more experience. Indeed it is perfectly possible to make a very good income just from trading from a few of the Forex currency pairs exclusively.

What Is The Spread And Why So Important?

The spread is basically the way that your on line trading platform makes its profit.

Similar to the way you buy and sell currency for your annual vacation there is a difference between what you pay for your vacation money and what the actual current price is, that is the spread in trading terms.

To explain this lets take a look at the Forex prices as shown on IGIndex, my preferred trading platform, today as I write this:

GBP/USD spread with IGIndex is quoted as sell at 1.2379.1 and buy at 1.2480.0 a difference of 9 pips as we call them.

EUR/USD spread is currently sell at 10669.5 and buy at 10670.1 a difference of 6 pips.

EUR/GBP spread is now sell at 8620.9 and buy at 8621.8 again a difference of 9 pips.

The actual current price of whichever currency we are looking to trade will be in the middle of the price range shown above. The amount either side of that real price is the margin of profit which the trading platform makes on each trade.

So What? What Does That Mean To Me And My Trading?

What this means to us in real terms is that we need to build in that additional number of pips into our profit target calculations. If we are trading EUR/USD for instance then, once we open our trade, the market needs to move 3 pips in out chosen direction before we break even on the trade.

So if our profit target is 15 pips we would be looking for the market to move at least 18 pips in reality.

OK, So I Have Read All Of This. When Are You Going To Answer The Question?

Fair point!

Well, we have ruled out any currency pair classed as Exotic as best being left well alone so that has narrowed it down a little bit.

For the time being at least we will also stay clear of the Minor or cross currencies pairs, apart from EUR/GBP, so that just leaves us with the Major currency pairs to choose from, which if you remember are the pairs which all include the USD as one of the pair.

Out of these I would recommend leaving the main currency pair EUR/USD alone as a novice, especially when you are just starting out with trading.

So to finally answer the original question, the Forex currency pairs I would suggest looking into starting your Forex trading career with are the following:

Major pairs GBP/USD, AUD/USD, USD/CAD along with EUR/GBP from the Minor currency pairs.

By focusing on just these few currency pairs we will have more than enough to keep us busy for quite some time. Watch the markets as they progress, apply whichever analysis tools and strategies we choose to use and then start trading.

I understand that you may have to read this through a couple of times to really understand what I am trying to say but it will be worth it in the end.

As always, please comment or ask any questions and I will do my very best to answer them for you.

 

 

 

 

What Is A Forex Trading Plan?

What is a Forex Trading Plan and why is it important?

A Forex trading plan is probably the most important tool in your trading arsenal and, in my opinion, essential if you want to have any measure of long term success.

So what exactly is it?

It is a plan which you create by combining all of the necessary elements required of a successful trader, tailored to your personal preferences, personality and situation to give you a sort of road map to allow you to trade consistently in the long term.

It is not a set of rigid rules which you dare not deviate from at any time, more a solid foundation from which you can build your own style of trading safe in the knowledge that you have considered everything that you need to before you place any trade.

What are these elements?

These elements include such things as what time you have available to actually trade. Will you be part time, full time, evenings only? How much money are you prepared to allocate to your trading bank to finance your trading?

What do you hope to gain from your trading activity? A bit of extra vacation cash, the odd luxury item or a full time income to replace your current day job? What type of personality do you have? Risk taker, totally risk averse or somewhere down the middle?

Which analysis method will you use to help you make your trading decisions? Fundamental analysis, technical analysis neither or a combination of both?

Will you choose to trade intra day, in and out quickly for smaller profits or let your trades run for days, weeks or even longer for hopefully larger profits?

Which on-line platform will you choose to execute your trades?

All of these things need to be taken into account before you even begin to trade for real and must be done if you wish to be successful at all.

Putting your Forex trading plan together.

To begin with lets address when you will actually be trading. Where in the world will you be trading from? As you may well be aware the markets open in Asia and throughout the day pass through Europe, UK and USA before beginning in Asia the next day. In reality the UK and USA trading periods are the most active so will be best suited to intra day trading where you are placing short trades lasting from a matter of minutes or hours. The Asia trading period is usually quieter and often not active enough to trade intra day. If you are planning to trade over longer time periods of days or weeks then it does not matter when you trade as all trading periods will pass while the trade is in progress.

 

If you live in a country where the more active trading periods are when you are asleep or at work you may find it difficult to trade intra day.

Although it is perfectly possible to trade with a small trading bank to begin with I do not recommend it for reasons stated elsewhere on this website. This means that you need to be able to set aside at least $1000 which you do not need to pay your bills to place with your broker as your trading bank.

Next you need to consider what it is that you wish to gain from your trading. Are you looking for financial freedom, whatever that means to you? Do you just want some extra income to pay for a holiday, car payments or to treat yourself and your family once in a while? Or do you want to replace your current salary from your trading activity and trade full time?

Are you the type of person who will happily take a risk, albeit a controlled and well thought out risk in this case, or do you worry about taking risks in life generally? Are you a person who gets emotional when things go against you or can you keep a level head and ride the storm, coming back a stronger person next time?

I cover the different types of trading analysis here. Which will you choose to use if any? Which one suits your personality best, Technical or Fundamental?

There are many different on-line trading platforms happy to take your money to trade with them. Which one will you choose? Will you take recommendations from others or do your own research? Will you just pick the first one you come across? As with almost everything else in life some trading platforms are much better than others and you would be wise to choose carefully.

Once you have gone through the decision making process with all of these questions you will be a long way down the road in creating your very own trading plan ideally suited to your needs and personality.

Complete this exercise before you ever place a real trade.

As I have covered earlier in this piece it is essential to ask yourself all of these questions and actually answer them before you even consider placing a trade. You are doomed to fail otherwise. There is no other way if you want to be successful short or long term.

Once you complete this you may discover that you do not want to be a trader in the Forex markets after all. That is fine and may well have saved you a lot of misery and wasted cash.

Once you have gone through this process however you will have a much better understanding of your own preferences regarding Forex trading and this will stand you in good stead moving forward.

You will have bad runs of trades, all of us do and it is how we deal with them which separates the successful from the non successful. However bad your last trade was there will always be another one tomorrow.

Having a robust plan of action based largely on your personality, aims and aspirations and personal circumstances will help you to improve and gain more confidence as you go along. As I said it is not a set of rigid rules which you must adhere to at all times but a solid foundation on which you can rely and base each trading decision upon.

I hope you have found this information useful and as always I welcome any thoughts or comments you may have.

 

Do People Make Money Trading Forex?

Do People Make Money Trading Forex?

This is a very common question that I often hear and a very sensible one if trading Forex is something you are considering beginning. So you would be perfectly within your rights to ask do people make money trading Forex?

Anyone who has been around the internet and make money online sector for any length of time will be only too aware of all of the BS out there.

Mocked up screenshots of untold wealth at the touch of a button.

Endless shots of fancy cars and exotic holiday destinations.

You get the picture ūüôā

This sort of hype is not yet so evident in the trading world where many people prefer not to flaunt their financial situation be that good or bad. Yes people do make money trading Forex and other financial markets but even more people lose money trying so what is the difference?

What Is Required To Be Successful?

 

Training and Understanding.

As I have said many times on other areas of this website you are asking to fail if you do not undertake some type of proper training, delivered by someone who knows what they are talking about and have the proven track record to back it up. This will be the foundation stone which will sustain you through both the good and the bad trading times.

You must also have a clear understanding of that training, how it relates to each market you intend to trade and the part it plays in every trading decision that you make.

A Clear Action Plan.

To be successful in both the short and long term you must have a clear action plan which you follow on a daily basis. This plan will guide you through the decision making process with the aim of making as automatic a process as is humanly possible in the trading environment. This automation serves to take as much of the emotional side of things out of the decision making process. Allowing emotion of any sort to influence your decision making will only end in disaster and loss of money.

A Large Enough Trading Bank And Proper Risk Management.

Although it is possible to begin trading for £1 per point I would not advise taking this approach. The main reason for this is to give your trades sufficient room to move. It is not practical to expect every trade you enter to only move in the direction you want much less to expect that every trade you enter will even be successful. To be practical you need to have a trading bank of at least £500 and preferably £1000 or more. For each trader you should never be risking more than 5% of your trading bank. If your availbale bank is too small then this 5% figure makes it very difficult to trader successfully in the long term.

The Forex market fluctuates almost constantly up and down, some moves are small but some are more dramatic. To be successful we need a tool to nullify as much of this fluctuation as we can.

Enter the good old Stop Loss Order

Whenever we place any trade, in whichever direction we believe the market will move, we will have decided both our intended profit margin and where our stop loss order will be set. Most successful traders work on a 1:2 risk reward ratio. This means that they plan to make 2 pips profit for every 1 pip they risk. This can seem a bit much as a beginner and the temptation to reduce this ratio will be strong however, losing trades have to be factored into any risk management system and your overall profit potential will suffer if you deviate too far from 1:2 ratio. If you have chosen a profit target of 50 pips then you would place your stop loss order at least 25 pips in the opposite direction to your trade. This will allow the market to move up and down but not affect your trade most of the time.

You can read more about Stop Loss orders here.

So This Is How People Make Money Trading Forex.

So the answer to the initial question is a resounding yes!

Anyone can make money trading Forex if they follow the points made above as a starting point. Essential requirements for a successful Forex trader are training, patience, focus, discipline, a clear plan of action which is executed with every trade and a trading bank large enough to allow then to trade without compromising their risk/reward ratio.

As always I hope that you have found this information useful. I have only scratched the surface in order to answer the original question so if you have any thought please feel free to comment.

Forex Training Works. The Only Way To Succeed.

Forex Training Works, No Arguement.

You may well have heard of people who have made a fortune trading the Forex markets. You may also have heard of people who have had their trading bank wiped out in a very short time too.

The only difference between the two camps is the likelihood that the successful traders had been properly trained.

Forex training works and there is no substitute for it if you wish to succeed. Yes, you have to study, take in information and act upon it but whoever said having a successful trading career was just going to happen without any effort on your part?

I once heard a quote along the lines of ” How do you make a small fortune?” the answer, ” Start with a big fortune” That can easily be the case if you venture into Forex trading without the proper training behind you. You should have lots of questions answered before you even consider becoming a trader. I will attempt to answer some of them here.

Why Do I Need To Learn How To Trade?

In many different spheres of life we are able to sort of muddle along meeting with a bit of success here and there while going on instinct and teaching ourselves along the way.

Take some of my own examples:

I am a keen runner. I can have good days and bad days but I have reached a certain level of success on my own. Once I joined a club and began getting proper training however my performances improved dramatically, when I am prepared to put in the effort that is ūüôā

Golf is another sport where enjoyment can be found up to a level but if it is sustainable improvement you are looking for then the correct training and tuition is what is required.

Away from sport, pick almost any hobby you like and you are pretty sure to be able to find plenty of tuition on the internet in the form of videos and information to download which could take you to the next level and make the whole experience more enjoyable for you.

Attempting to start out by finding your own way before seeking out proper training is not the way to go when considering dealing in trading Forex.

Firstly, although the actual mechanics of trading Forex are quite simple and straightforward there are a lot of potential pitfalls lying in wait for the unwary trader.

Fear or, potentially even worse, over confidence.

Incorrectly interpreting what the market and trading charts are telling you.

Using tools and strategies which complicate your trading activity without adding benefit, just because somebody somewhere said it was the way to go.

Which from the array of currency pairs quoted should I be trading in?

USD/GBP or GBP/EUR or USD/EUR or JPY/CHF or USD/CHF????????

The list is endless but I hope you get my point.

Forex training works and is essential if you want to have a long career in the trading environment. Of course success is never guaranteed even with the best training because individual decision making will always play a part. Having the right training behind you though will certainly eliminate a lot of the opportunity for failure.

What About The Thrill Of Taking Risks?

There is no doubt that for some traders the thrill of risk taking and proving everyone wrong ranks very highly on their list of priorities, that is an individual choice and does not mean that it is the correct approach for everyone.

Done properly there is plenty of excitement to be had in the Forex training arena anyway. What greater thrill could there be than to research your chosen market, decide on your trading direction, place the trade and monitor it as required then close it out successfully at or above your anticipated profit margin.

Just make sure you contain your emotions during the trade and leave any celebrations until after you have closed it. Remember, never let emotion infiltrate your actual trading activity when you are live.

So, Where Can I find Forex Trading Training That Works?

That is a very good question and one which I intend to answer right here.

When I first started I looked into lots and lots of courses, some good, some not so good, some ridiculously expensive and some so cheap it didn’t make sense. Finally I discovered a step by step approach which claimed to guide a complete beginner through the minefield which can be Forex trading.

That course was called Trading The Easy Way and you can find more about it right here.

I really hope that this has not put you off the thought of trading the Forex market. It can be such a rewarding and fruitful way to earn additional income and does not have to be scary or expensive if you do it in thew correct manner and get the right training under your belt.

To you future trading success.

Getting it right from the beginning.

Getting the right Forex trading mindset is probably the most important part of the entire trading puzzle. It is the piece which holds every other part of your strategy for trading together.

Unless you can trade with focus and discipline, which is easier said than done by the way, all of the other bells and whistles available to you will be pretty much worthless.

The first mistake that can prevent you from getting the right Forex trading mindset is to view the Forex market as being an entity with feelings. It is not and never will be!

Yes, at times you will feel like the market is personally doing everything it can to ruin your chances of success, for example:

Your stop loss gets taken out just before the market reverses back in the direction you were trading.

Your trade is a couple of points short of your profit target then moves sideways for a while and you do not know whether to take less profit or hold out for your target.

You close out your trade happy with hitting your profit target then watch as it suddenly shoots off in the right direction moments after.

 

Trust me, we have all been there and it can often feel as if it is just you and the market and the market holds all of the aces. This is just plain daft. There are so many other players in the market each of them holding different views and trading positions at any particular time. For every winner there is a loser and the Forex market could not care less which way it goes as it is just a tool for traders to set a price between 2 currency pairs. Nothing more! 

There is no place in Forex trading for emotion.

If you are trading properly, and if you are not you will not be trading for very long, you will have taken all emotion out of your trading decisions. You will have taken into account all of your analysis regarding the current state of whichever currency pairs you are considering trading. If you are using Fundamental Analysis you will have reviewed any upcoming announcements which may affect the market price during the period you will be trading. If you are using Technical Analysis then all of your charts and tracking data will be up to date and reflect which way the market looks like it will be moving.

Next you will have worked out your anticipated profit target in pips and committed whichever % of your trading bank to this particular trade. As you will already know I firmly suggest that this will be no more than 5% of your current bank.

You will also have worked out your risk/reward ratio to determine whereabouts your stop loss order will be set, taking into account recent highs and lows of the market price depending on which way you are considering placing your trade.

You are now just about ready to place your trade and hit the button to make it live.

You will have noticed I sincerely hope that at no stage during this process did I mention anything other than studying the facts. Doing your research of exactly what the market is saying. Making a trading decision based on factual information and your understanding, through proper training, of what the trading charts and all of your tools are telling you.

At no stage were any of these steps treated with emotion.

You did not think which way the market was going to move.

You did not try to guess where to place your stop loss order.

You did not wonder if everyone else was wrong and you were going to make a killing by going against what the charts were telling you.

You did not use your gut instinct regarding how you were going to trade.

Everything you did was based on factual information right in front of you. There is no other way to successfully trade the Forex market.

I really hope that I have got this message over to you loud and clear. At no stage ever during your trading career will you let emotion or feelings play any part in your trading mindset.

Every time you consider placing any Forex trade you will only do so after careful consideration of all of the facts your trading tools and strategies are showing clearly.

Everything you need to assist you in being successful is right in front of you. You do not need to guess.

One final and very important point.

If you have reviewed all of the information laid out in front of you and you cannot see enough information to allow you to place a trade then don’t! There is no rule which says that you must trade every day. This is once again an area where emotion and feelings can kill your trading operations.

You can always look at a different currency pairing as long as you do your thorough research.

You can come back later to see how the market has developed, if at all.

You can make the rational decision that today is not a day for you to trade and come back tomorrow and start your research all over again.

Never, ever enter a trade because you feel that you ought to.

I hope that you have found this information useful and that you will put it into action once you begin your Forex trading career.

As always, please leave a comment or question below and I will reply as soon as possible.

 

 

Stop Loss Definition. Your Best Trading Friend!

What is a stop loss?

This is my stop loss definition. A stop loss is probably the most important tool to learn how to use and something which will turn out to be your best friend in your trading world.

I have said in previous posts that you should never ever enter a trade without knowing exactly how much you are going to lose in a worst case scenario. The way we do that is by using a stop loss order.

When you place a trade you have already decided which way you believe the market is going to move, up or down based on your trading method and thought process. For this example we will say that we believe the market will go up.

Although I haven’t covered this yet we will have a target in mind for the amount of market movement which will produce the amount of profit we have planned for this particular trade. Lets say 20 points or pips as they are more commonly known.

We have placed a trade, what happens next?

We have clicked the trade button and we are live in the market. Just because we believe that the market price will rise, it does not mean that it will happen straight away or even happen as we believe at all. To guard against the market moving in the opposite direction to the way we would like we use a stop loss tool. For this example, to try to keep this as simple as I can I will use a scale of 0-100 instead of an authentic market price.

The market price when we entered the trade was 50. We are looking for a 20 point/pip trade profit so would like the market price to rise to 70 or above.

Looking at the previous time period we can see that the lowest the market price has been recently is 38 a while back and it has not been lower for quite some time. To begin the trade we would look to set our stop loss just below that low point, maybe at 35.

We make that decision based on 2 things.

  1. We believe that the market is going to rise not fall.
  2. If the market does begin to fall, recent trading activity strongly suggests that it will not go lower than it has in the recent past.

That means that we could lose a maximum of 15 points/pips. If we were trading at £1 per point that would mean a maximum loss of £15.

In this simplified example, if we had read the market completely incorrectly and the market went down our trade would automatically be closed out by our trading platform when the market hit 35 and met our stop loss.

This trade would result in a £15 loss. We knew that was the worst case at the start of the trade and we were happy to take that amount of risk.

What is a trailing stop loss? How does it work?

If however we have read the market correctly and the market price begins to rise then we have an option to reduce our potential loss by using another tool called a trailing stop loss.

As the name would suggest this is a moving version of a stop loss and follows, or trails the market price. These trailing stop losses can be either automatic or manual. I always prefer to use a manual trailing stop loss which I alter myself.

In our example the market price was at 50 when we entered the trade and it has now risen to 60. As the market has risen by 10 points/pips we can move our trailing stop loss to mirror this rise. We move it up 10 points/pips from 35 to 45. We now stand to lose only 5 points/pips if the market goes against us, the difference between the staring point of the trade of 50 and our current stop loss of 45. Our maximum loss is now reduced to £5 instead of £15.

Look to reach break even point as soon as possible.

In an ideal world every trade that we enter will be successful and net us the intended profit target. We do not however live in an ideal world.

The best that we can do as a Forex trader is to attempt to reduce our potential losses to a minimum as soon as possible. A trailing stop loss allows us to do this when the market is moving in our favour.

In our example here as soon as the market price hits 65 we could move our trailing stop loss to 50 and ensure that at worst we break even if the market suddenly reverses on us. If or when the market reaches 70 we could happily close our trade out and take our 20 points/pips profit and either stop trading for the day or begin looking for our next potential trade.

There is clearly a temptation to move the trailing stop loss too quickly to get to the break even point as soon as the market starts to go in our favour. The risk with that is that the markets do not move only in one direction at a time. The price action ebbs and flows and those who believe that the market will rise fight against those who believe the opposite will occur.

If we have moved our stop loss too early then one of these ebb and flow movements may end our trade early. True we have not lost as much as we could have but we will also have cut down our chance of a fully successful trade too,

As a result of this we always keep a healthy gap between the current trading price and our stop loss. This allows the market room to move up and down and as long as it moves more in our direction we are fine.

 

Mistakes to avoid if you wish to be a trader long term.

If you have done your research, used the information given to you by your preferred trading analysis method and stayed focused and disciplined many of your trades could work out in the way I have just described.

If that is the case why do so many people lose money with Forex trading?

Lack of discipline, greed and letting in emotion are the main culprits here.

Lack of discipline.

Discipline is an essential tool in your Forex trading toolbox. Without it you are lost and destined to fail and fail pretty quickly.

Assuming that you have followed your plan, used your preferred analysis method and entered a trade with your stop loss in position then you should be OK. If however you lose that discipline and alter something about your trade once it is open, change the profit target, second guess the market or move a stop loss in an incorrect way then you risk ruining the trade which you so carefully set up in the first place.

Greed.

This is a killer. You think you are onto a winner, you think you are a better trader than you actually are. You trade with a bigger % of your trading bank than you planned to because this trade is the one. The price goes in your direction and hits your target price. You want more, you take that risk and can see the £ signs hitting your trading account. You are so confident that you do not move your stop loss. Suddenly the market reverses against your forecast. 10 minutes ago you could have been out of your trade with your profit target safely banked but now you have lost it all.

To compound this result you now decide to move your stop loss further away. You knew you were right and this is just a blip, the price will go back up again soon. We call moving your top loss like this giving the market room.

You may be right of course but you may also be wrong and moving your stop loss has just caused you to take an even bigger loss than you planned.

Don’t ever let greed take over your trading. Set a plan and a profit target and stick to it.

Emotion.

The market does not have feelings, It is a mechanical machine which responds to traders betting on which way the market will move and sheer weight of money. Nothing more.

It does not know exactly where you have placed your stop loss or what your profit target is and it doesn’t care.

Trust me, the market will go against you at times, far more often than you would like. That is why we incorporate stop losses as our most important tool, to limit the damage done to our trading bank.

I know only to well that the price will move just enough to take out your stop loss and close your trade before shooting off in the direction you wanted it to and soaring past your intended profit target.

These are the trades you remember only to well. You seem to forget the ones which struggled then suddenly went your way and made a nice little profit.

Never take anything that happens in the market personally. Keep emotion out of it. It will only affect your decision making in the future.

Summing it all up.

I accept that this has been a very simplistic view of how a trade works. I just wanted to give you a simple example of what happens. There are far more parts involved in a trade but that does not have to make it any more complicated or difficult.

I hope that I have pointed out a few of the reasons why you should not be afraid to start trading Forex and also described some of the pitfalls of not doing it properly.

Please feel free to comment or ask further questions on the subject of stop losses.

How To Start Forex Trading. How Tough is it?

How To Start Forex Trading?

This is a question that I get asked fairly often. In reality the answer is that it can be as simple or as difficult as you want to make it.

The basics of trading Forex are pretty simple, you are looking at a chart showing the current relationship of one currency against another. All you have to do is decide which currency is stronger and whether that strength will move the market upwards or downwards.

 

How hard can that be?

Of course, Forex trading is not as easy as that, simple and easy do not always mean the same thing.

 

Essential Items Required To Start Trading Forex.

Before you get going with your trading activity you will need a few essentials. You will not be surprised to know that one of them will be money!

Although it is true that you can begin trading with an online trading platform for very little outlay, realistically to give yourself the best chance of success you are going to need at least $500 preferably nearer $1000. There are tools you can use to limit your exposure to sudden market changes and you should always have a limit on any potential losses before you place any trade.

You do however need a bank to begin with to allow you to trade with less stress and worry of running out of cash. One thing you do not need to be doing when trading is worrying.

You will also need a platform to trade on. There are many of these around some much better than others. I personally use IG Index but it would serve you to do a little research and find the one with which you feel most comfortable.

This online platform will allow you to open an account, subject to some checks of course, and provide you with more options to trade, or spread bet as it is officially called, than you will ever need. We are only interested at this time with trading the Forex market.

You now have access to the price charts within your online trading platform. These charts can range from time periods of seconds to days or months, you decide. Whichever time period you choose will be represented by one bar or candlestick. These move up and down reflecting the price movement as shown on the chart below.

 

Other Factors to Take Into Consideration.

This is the point where you as a trader can complicate matters a lot. There are a million and one bells and whistles which you can use to ” help” you with your trading decisions.

Do you use Fundamental Analysis, Technical Analysis, Volume Price Analysis, a mixture of them or none at all?

Do you follow trends? Take notice of Government announcements regarding interest rates, employment figures or another of the many factors which can affect the price movement?

Many of these tools are added to the charts, again to “help” you with your trading decisions. Look at the chart below to see how complicated things can soon begin to look to the inexperienced trader. Lines running all over the place with no apparent connection to the chart.

 

I hope that you are beginning to see how quickly the whole thought of trading could be overwhelming.

My suggestion is that when you first start you will need very few additional tools. You can choose one method of analysis to help your decision making.

Don’t Let All of This Put You Off Trading Forex.

Trading Forex can be a wonderful, exciting but sometimes frustrating experience. At times you will feel as if you can do no wrong, every decision seems to work out well and all of your hard work pays off. At other times you will definitely feel as if the market is picking on you personally and heading opposite to you on purpose out of spite.

You have to take the emotion out of your trading!

You cannot control how the market reacts. You can only control your decision making. Do your due diligence, use the tools and strategies which you understand on a consistent basis and trade with discipline not emotion and you will be rewarded many times over. Nobody gets it right every time and you should not expect to do so either.

As your experience grows you will learn tips and methods to take advantage when the market moves in your favour and how to limit your losses when it doesn’t.

This is not a get rich quick way to make money, more of a serious hobby which, when done properly can be very rewarding both financially and mentally.

Start Trading Forex: Understanding Candles

What are Candlesticks?

One of the first things you will have to learn to read on your trading charts are a signal called candlesticks.

These are the signals which mark price ranges for the chosen trading period.

Each candle signifies four price points. These are the opening price, the closing price, the highest price during that period and the lowest price.

Below is an illustration of a trading candlestick. The solid part in the middle is known as the body and the thin points are known as wicks. We will assume for this explanation that this is a candle from a rising market. The bottom of the body section is the opening price, the top of the body section is the closing price. The end of the lower wick is the lowest price and the top of the upper wick is the highest price.

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How do we tell the difference?

Clearly if all of the candles on the trading chart are the same colour then we will have no idea in which direction the market is moving. To solve this issue we edit our charts to give the rising candles one colour and the falling candles a different colour. My preference is to use green for rising and red for falling, this makes it easy to read the chart at a glance.                                                                 ©image copyright averych/shutterstock.

Different Types of Candles.

Depending on the size of the body section and its position in the price range there are different names given to different types of candles. A standard size candle in a rising market is called a bullish candle and a standard size candle in a falling market is called a bearish candle.

Candles with a very small body and one wick much longer than the other is called a Hammer candle at the bottom of the market and a shooting star at the top of the market.                                                       © image copyright Pavlo S/Shutterstock.com

 

I will cover other candle names and patterns in a later post. This should be enough to get you started for the time being.

So You Want To Start Trading Forex?

So You Want To Start Trading Forex?

So, you have heard all about the exciting world Forex trading and would like to find out more for yourself. Discover if it is something that you can get involved in and trust me, once you do start trading Forex there will be no going back, you will be hooked……………….in a good way of course!

Where to begin?

 

Forex is short for Foreign Exchange, the trading of world currencies against each other to establish the exchange rates between those currencies.

Why is it important?

Everything which we all buy is affected by these exchange rates from fuel to groceries and gifts for our loved ones. The most common example of this, which I am sure most of us have come across, is when we exchange currency for our overseas vacations. Indeed that is a very good example which we will discuss further later on.

Unlike the Stock Exchange we have all seen in the films, people on a trading floor answering phones and screaming at each other “Buy, Buy, Buy” or “Sell, Sell, Sell”, when you start trading Forex it will all be conducted on-line.

The basic reason for the existence of the Forex market is to set currency exchange rates which allow businesses and banks to trade easily without having to haggle over how much their national currency is worth against another at that particular point in time. As such it is probably the busiest, or most liquid of all the financial markets with billions of dollars being traded every day.

That is all very well I hear you say. How do we fit into all of this? How can we get involved and why?

A very good question.

From our point of view there are two  main differences between stocks and shares and Forex. Stocks and shares most often require a large financial outlay and a long term view whereas Forex requires a much smaller financial outlay and can be traded in periods from a few minutes, over the course of one day or for longer periods of days if you wish. The choice is yours.

Another aspect in our favour when we start trading Forex is the fact that it is a 24 hour market. The market opens at midnight on Sunday in Asia, UK takes over at around 8am and runs until the US market opens mid afternoon. This cycle continues until the US market closes late on Friday night.

This gives all of us wherever we are globally access to this exciting and potentially lucrative market.

I will finish this section by explaining the basics of how we actually get involved and place our trades.

We do this by holding an account with a spread betting platform. There are many of these out there, City Index, IG Index, ETX Capital and Spread EX to name but a few. These companies give traders the facility to trade at a reasonably low outlay on any number of currency pairs. The list is endless but most traders focus on just a couple. There are 7 major currency pairs and we will look at those at a later date.

To complete this part I will take you back to the currency exchange many of us do for our vacations which I mentioned earlier.

You will no doubt have noticed that we buy and sell our vacation money at different rates. It is this difference that the spread betting platforms use to make their profit. This allow us as Forex traders to have access to the markets at a very low outlay as the platforms make a small amount of money whether we win or lose our trade.

I will cover these points in more depth as we progress but there is no rush to learn all of this in one go.

I hope you found this information interesting, please feel free to ask questions or make a comment. I will reply as soon as possible.