FX Tango

A Journey to Master Forex Trading (FX Trader from Singapore)

Showing posts with label Education. Show all posts
Showing posts with label Education. Show all posts

Sunday, December 7, 2008

How to Profit Trading Forex

How to Profit Trading Forex

Basic yet important things every trader should know.

If you hear from anyone that making money in Forex is easy, do not believe it. It is a myth. The truth is – being profitable in Forex requires a lot of work, dedication, practice, more than a good discipline, sharp knowledge of money management and understanding of the psychology of the currency market. Not so little and therefore not so easy...

Trading Forex was never about gambling

Trading is not a gambling by guessing where the price will move, although there are many traders (mostly beginners) that are exactly gambling... Trading currencies on the Forex market requires logical and analytical calculations based either on fundamental or technical analysis of price moves.

Making money in Forex requires a set of rules

Making money starts with a plan to make money. Such plan is of enormous importance when it comes to trading foreign currencies. But, besides creating a plan, a trader needs constantly follow it. How often trader brake his rules will affect how much money he will make trading Forex. Sounds simple: create and follow... However, there is a real challenge when trader follows the rules but rules fail to make money... it happens inevitably for every trading system known. If system had proven to be successful, sticking to the trading plan and firmly following the rules even when losing money will eventually yield profitable outcome. Having strong trading discipline and taking losses when necessary is a sign of serious trading approach.

Succeeding in Forex by using money management

To profit in Forex sticking to a set of rules is not enough. Good money management is also needed. Knowledge of how much to trade per each open position and where and when to stop – is what separates successful trader from bankrupt trader. Many beginner traders over-leverage themselves being attracted by big and promising leverages offered by Forex brokers. The truth is that a big leverage is not only about a big win, but also when it comes to be so – a big loss. Leverage higher than 1:20 will not attract serious investors.

Know your losses, before counting profits

Opening a new trading position must be first of all about how much money may be lost and then what would be the profits. Good money management implies that trader is expecting to win at least twice as much as he could lose on each trade. This way being right only 50% of the time will still make trading profitable.
Using good money management in Forex trading is hundred times more important than having any great trading system itself.

Forex traders' mind

And last but not least is trader’s psychology. Going in profit or losing money always create psychological challenge for trader to act responsively. Not being greedy and also cutting losses short is the key to this game.
Trading Forex you need to accept losses. They are inevitable and occur in any money involving operations. Therefore, instead of battling losses trader needs to accurately analyze unfavorable situations and take lessons from losing trades.
Every experienced trader would also suggest – there must be no attempts for revenge when losing money. Trying to return your money at any cost will put a trader in deeper troubles. Instead, the trader should return to trading rules and honestly analyze own mistakes, accept that the market was not in his favor and try to improve the trading plan for future success.

Successful traders are learners, what about you?

And finally, even successful traders are constant learners. Up-to-date knowledge about Forex market opportunities is what also makes them continuously profitable in their trading career.


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Friday, December 5, 2008

The Lazy Forex Trader's Way to Riches

Are You Willing to Pay the Price?

HA! Made you click!

If you really thought there actually was a way for a lazy forex trader to get rich, SHAME ON YOU!

No such thing exists. The word "lazy" and "trader" is an oxymoron. You have to be willing to pay the price to become a trader.

Which brings us to our next lesson....

So, you’ve gone through the School of Pipsology…five times, learned basic analysis and money management techniques, and maybe even opened up a demo account and started trading a plan you’ve created. (You do have a trading plan right?) Now you can sit back and relax because it’s easy money from here on out, right?

Wrong!

You’ve just taken the first step.

You’ve only familiarized yourself with the very basic fundamentals of what it takes to become a professional trader. Now it’s time to get on to the real work.

I’m sure you’re now thinking, “There’s more to learn?!”

Well, my friend, the learning never ends.

As with any profession, whether you’re a doctor, lawyer, athlete, assassin, spy, ninja, ultimate fighter, musician or any other occupation that requires a high level of skill, you can never stop learning and practicing. Otherwise, your skills will deteriorate and you’ll slowly forget what you’ve learned.

This lesson will give you a peek into what it takes – education, time, money and psychological stamina – to enter the most financially rewarding career on the planet: a professional trader.

Education

Imagine yourself in a legal situation and you decide to hire the cheapest lawyer you can find. On the day you have to stand in front of a jury, your lawyer says to you, “Don’t worry, while this is my first time, I’ve read ‘How to be an Awesome Lawyer in 28 Days for Idiots’ a couple of times, so I know what I’m doing. You’ll be fine.”

Do you think your investment in that lawyer will pay off?

Probably not.

You’ll probably end up in prison with a tattoo covered cellmate named “Killer” for the rest of your life.

Now I’m not a professional lawyer, but I’m pretty sure that it takes more than one book to become one. More likely, lawyers have read and studied a wide range of books, journals and case studies in order to fine-tune their practice. So why should it be any different to become a professional trader?

Trading involves becoming proficient in a multitude of disciplines, including fundamental analysis, technical analysis, sentiment analysis and self-awareness (also known as trading psychology or what I call “mental analysis”).

Within those disciplines are different topics that should be studied individually.

For instance, while the School of Pipsology does a fantastic job of introducing the Elliot Wave theory and making it easy to understand, there’s abundant amount of entire books written on that single subject. The same thing goes with many other technical tools (i.e. candlestick charting, Fibonacci numbers, pivot points, etc.), fundamentals and trading psychology.

If you limit your education to a basic high-level overview of a few subjects, how do you think that will help you acquire the skills needed to become a successful trader?


I’m not saying go out there and read everything there is to read on trading. While that would be ideal, realistically it’s not possible.

What I am saying is this…

Before you enter a single trade, read and study enough to know why a tool works, how it works and how well it has worked in many different situations. After you start trading your live account, continue reading and studying some more. The forex market is dynamic and continuously changing. (What market isn’t?) Being well versed in all the disciplines of trading gives you the ability to adapt and make quick decisions in this fast-paced market.


Time

Have you ever told yourself there’s never enough time in the day? I think we’ve all thought that to ourselves at one point, but if you’re not willing to shift your priorities to make time for trading, then forget about becoming a trader.

Sorry to put it so bluntly, but contrary to popular belief, trading is not a hobby.

Trading is not a hobby.

Trading is not a hobby unless you want to lose money.

Golf is my hobby. I pay to play golf. Golf is Tiger Wood’s business. Tiger Woods is paid to play golf.

See the difference?

Trading is a business

You have to devote yourself to trading just like you would with any other business in order to be successful.

So, it’s time (pun intended) to ask yourself this: “Can I balance my time and change my lifestyle to make room for trading?”

I’d better hear a resounding “YES!”


But before you can even truly answer that question, you need to first figure out what your daily priorities are and determine whether or not you can make trading THE number one priority.

A good way to find this out for yourself is to list your daily activities, and then prioritize them. If your daily priorities take up all of your time, then forget about trading.

So, take a moment to figure out what is going on in your life because it’s very important to balance your time and priorities, not just to become a successful trader, but also to live a content, meaningful life. We all want to be wildly profitable, and initially we may drop everything else to get there, but in the end an unbalanced life will lead to personal and/or professional failure.


Capital aka Cash Money

It takes money to make money. Everyone knows that, but how much does one need to get started in trading? The answer largely depends on how you are going to approach your new start-up business.

First, consider how you are going to be educated. There are many different approaches in learning how to trade: classes, mentors, on your own, or any combination of the three.

While there are many classes and mentors out there willing to teach forex trading, most will charge a fee. The benefit of this route is that a well-taught class or great mentor can significantly shorten your learning curve and get you on your way to profitability in a much shorter amount of time compared to doing everything yourself.

The downside is the upfront cost for these programs, which can range from a few hundred to a few thousand dollars, depending on which program you go with. For many of those new to trading, the resources (cash money) required to purchase these programs are not available.

For those of you unable or unwilling to pony up the cash for education, the good news is that most of the information you need to get started can be found for FREE on the internet through forums, brokers, articles and websites like BabyPips.com. We should all thank Al Gore for inventing the Internet. Without him, there would be no BabyPips.com

This is no one “correct” path.

As long as you are disciplined and laser focused on learning the markets, your chances of success increase exponentially. You have to be a gung ho student. If not, you’ll end up in the poor house.

Second, is your approach to the markets going to require special tools such as news feeds or charting software? As a technical trader, most of the charting packages that come with your broker’s trading platform are sufficient (and some are actually quite good). For those who need special indicators or better functionality, higher end charting software can start at around $100 per month. Maybe you’re a fundamental trader and you need the news the millisecond it is released, or even before it happens (wouldn’t that be nice!). Well, instantaneous and accurate news feeds run from a few hundred to a few thousand dollars per month. Again, you can get a complimentary news feed from your broker, but for some, that extra second or two can be the difference between a profitable or unprofitable trade.

Finally, you need money/capital/funds to trade. How much exactly? Well, let’s be honest here. If you’re consistent and practice proper money management techniques, and without even knowing your monthly expenses, then you can probably start off with $50k to $100k in trading capital. It’s common knowledge that most businesses fail due to undercapitalization, which is especially true in the forex trading business. So, if you are unable to start with a large amount that you can afford to lose, be patient, save up and learn to trade the right way until you are financially ready.

Psychology

Once you’ve made the time to get properly educated, demo trade, and save up sufficient capital, the time will come where you will have to tackle the markets. By this time you should’ve have learned the mechanics of trading and methods to analyze the market that you are most confident using.

But are you ready to risk your hard-earned money?

Can you put your money where your mouth is?

Can you handle the (emotional, psychological and financial/economic) pressure of the occasional losing streak and account drawdown?

Will you be able to control your excitement on a profitable trade?

Can you let go of your last trade and completely focus on your next opportunity?

What separates the profitable traders from the unprofitable ones is that profitable traders can handle the pressure of risk and control their emotions. They realize that losing is just a part of business. Those who have enough confidence in their methods and systems know that a drawdown is a short-term setback and they will soon recover.

This final crucial lesson can’t really be taught. It will take time and experience. You have to put in the hours. You will have to go through a gazillion different trades and different market environments before you grasp and live these concepts. If you can’t do this or aren’t willing to, then ultimately, trading may not be for you.

Summary

For those willing to take the challenge and follow through, professional trading can be a worthwhile goal. But before you dive too deep into forex trading, dip your toe or get your feet wet in the shallow end first, and become familiar with the water. As you get more comfortable, make your way slowly to the deeper end. Take your time.

Be honest with yourself.

Be ready to sacrifice your time and money.

Never stop learning and, most importantly, never quit.

Winners never quit and quitters never win.

The price of becoming top trader is extremely high, but certainly worth it.

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Thursday, December 4, 2008

Plan Your Trade and Trade Your Plan

Why Have a Trading Plan?

Uh oh! You’ve learned so much and have come so far in your education, and yet you're still haven't graduated high school. No, you’re not dumb, BUT you didn’t have a trading plan.

Our point is that you can fill your mind with plenty of information, but without a good trading plan and the discipline to stick to it, you will NEVER be profitable.

Think of your trading plan as your map to success. It will be a constant reminder of how you will make money in this market. Of course it’s not required, and if you can make your living by trading without a plan, we will bow down and hail you as the Market Zeus of the Forex.

So you CAN trade without a plan if you want, but before you make that decision, let us give you a few reasons WHY you should have one.

Why Have a Trading Plan?

Reason 1: It keeps you in the right direction

Consistency is very important to have in your trading routine because it allows you to truly measure how successful you are as a trader. If you have a sound trading system but always break your rules, how can you ever really know how good your system really is? Your trading plan will keep you on target. Read it every day and stick to it.

Reason 2: Trading is a business and successful businesses ALWAYS have plans

I have never seen a successful business not start out with a plan. Do you honestly think Walmart was just created on a whim and then magically became successful? Or what about McDonalds? I’m sure almost anyone can make a better hamburger than McDonalds, but the difference between them and the individual is that they have a successful business plan that guides them to success.

In the same way, you can relate the McDonald’s story to your trading career. Whether it’s by luck or experience, everyone can make money in the forex. However, the difference between a losing trader and a successful trader is the PLAN. If you have a good trading plan and you are disciplined enough to stick to it, you will be successful!

Now you know why you should have a trading plan. Let's find out what makes up a trading plan...


What Should be in Your Trading Plan?

Trading plans can be as simple or complex as you want it, but the most important thing is that you actually HAVE a plan and you FOLLOW the plan. With that said, here are some of the essentials that every trading plan should have.

1. A trading system

This is the heart of your trading plan. This system should be one that you have thoroughly backtested, and have traded for at least two months on a demo account.

Include all the necessary information about your system such as: time frames you use, criteria for entries and exits, how much you risk during each trade, which currency pair(s) you trade and how many lots you trade.

Example: I am an intra-day trader and I trade off of the 10 minute charts. I enter when there is a moving average crossover and all my indicators support the direction. I only trade the EUR/USD and I risk no more than 2% of my account on each trade. For now, I trade 5 mini lots and will increase my lot size according to my 2% money management rules.

2. Your trading routine

This is a crucial part of your plan because it will determine three very important things: when you will analyze the market and plan your trades, when you will actually watch the market to take trades, and when you will evaluate your actions during your trading day.

3. Your mindset

Ask any trader out there and they will all tell you that one of the hardest things to do when trading is to take out your emotions from it. This section of your trading plan will describe what frame of mind you will be in when you are trading.

Example:

  • I will see what is on the charts and not what I want to see.
  • No matter how biased I am towards a direction, I will make sure to trade only what my eyes see and not what my feelings tell me.
  • I will not get “revenge” on the market if I lose on a trade.
  • I will not beat myself up if I make a losing trade. Instead I will take it as a learning experience and move on.
4. Your weaknesses

Yes, we all have our weaknesses. We just don’t like talking about them. But ask yourself this, “How will you ever get better, if you don’t admit to what you need to work on?” This section will be an objective way to keep track of things that you need to work on in order to become a better trader.

Example:

  • I tend to overtrade. Whenever I lose on a position, I get upset and immediately try to get “revenge” on the market.
  • I tend to exit early on trades.
  • I don’t stick to the rules of my system every time
  • I don’t stick to my money management rules every time

5. Your goals

“To make a lot of money” is not a good goal. Sit down and really think about what you want to accomplish as a trader. Do you want to trade for a living? How much return can you realistically expect from trading based on your knowledge and experience? Your goals don’t even have to be about making money. Maybe you would like to be more disciplined or gain more confidence. These goals can be personal. What do YOU want to get out of this? Use these goals as your motivation when times get tough. These goals will be your vision, and you must always keep your eyes on the prize!

6. Your trading journal

This will be a valuable tool to helping you become a better trader. Make sure you log all your trades and why you took them. Later down the road you can look back and evaluate your trades and see how you are progressing. I’ve looked back at my trade journal and have seen just how much I’ve grown as a trader. My first entries were very basic and as I’ve progressed, my trades make more sense to me now. I’ve gained a lot of confidence throughout my career and by looking back at my trades, I’ve really been able to evaluate myself and see if I am getting closer to my goals. This tool will help you tremendously in the long run, so take a few minutes each day and log your trades. You’ll be happy you did!

Summary

Your trading plan will be your trading “bible”.

Read it everyday and stick to it.

You can have all the trading tools in the world, but if you don’t have a plan on how you will use them, you will never be successful.

Remember, you are starting a business, and if you want your business to succeed, you need to have a PLAN!

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Types of Trading

  • There are 2 types of analysis: Fundamental and Technical

  • Fundamental analysis is the analysis of a market through the strength of its economy. (i.e. the dollar gets stronger because the US economy is getting stronger)

  • Technical analysis is the analysis of price movements. Technical analysis = charts.

  • Technical analysis also helps us identify trends which can help us find profitable trading opportunities.

  • To become a successful trader, you must always incorporate both types of analysis.

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The definition of a successful trader

The definition of a successful trader is having the ability to do three things:
  1. Make pips
  2. Keep pips
  3. Repeat
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