January 2007
Trading Tip: FOREX 101: Make Money with Currency Trading
by Rich McIver
For those unfamiliar with the term, FOREX (FOReign EXchange market), refers
to an international exchange market where currencies are bought and sold. The
Foreign Exchange Market that we see today began in the 1970's, when free
exchange rates and floating currencies were introduced. In such an environment
only participants in the market determine the price of one currency against
another, based upon supply and demand for that currency.
FOREX is a somewhat unique market for a number of reasons. Firstly, it is one
of the few markets in which it can be said with very few qualifications that it
is free of external controls and that it cannot be manipulated. It is also the
largest liquid financial market, with trade reaching between 1 and 1.5 trillion
US dollars a day. With this much money moving this fast, it is clear why a
single investor would find it near impossible to significantly affect the price
of a major currency. Furthermore, the liquidity of the market means that unlike
some rarely traded stock, traders are able to open and close positions within a
few seconds as there are always willing buyers and sellers.
Another somewhat unique characteristic of the FOREX money market is the
variance of its participants. Investors find a number of reasons for entering
the market, some as longer term hedge investors, while others utilize massive
credit lines to seek large short term gains. Interestingly, unlike blue-chip
stocks, which are usually most attractive only to the long term investor, the
combination of rather constant but small daily fluctuations in currency prices,
create an environment which attracts investors with a broad range of strategies.
How FOREX Works
Transactions in foreign currencies are not centralized on an exchange, unlike
say the NYSE, and thus take place all over the world via telecommunications.
Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00
GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the
world, there are dealers who will quote all major currencies. After deciding
what currency the investor would like to purchase, he or she does so via one of
these dealers (some of which can be found online). It is quite common practice
for investors to speculate on currency prices by getting a credit line (which
are available to those with capital as small as $500), and vastly increase their
potential gains and losses. This is called marginal trading.
Marginal Trading
Marginal trading is simply the term used for trading with borrowed capital.
It is appealing because of the fact that in FOREX investments can be made
without a real money supply. This allows investors to invest much more money
with fewer money transfer costs, and open bigger positions with a much smaller
amount of actual capital. Thus, one can conduct relatively large transactions,
very quickly and cheaply, with a small amount of initial capital. Marginal
trading in an exchange market is quantified in lots. The term "lot"
refers to approximately $100,000, an amount which can be obtained by putting up
as little as 0.5% or $500.
EXAMPLE: You believe that signals in the market are indicating that the
British Pound will go up against the US Dollar. You open 1 lot for buying the
Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to
climb. At some point in the future, your predictions come true and you decide to
sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on
an initial capital investment of $1,000, you have made over 40% in profits.
(Just as an example of how exchange rates change in the course of a day, an
average daily change of the Euro (in Dollars) is about 70 to 100 pips.)
When you decide to close a position, the deposit sum that you originally made
is returned to you and a calculation of your profits or losses is done. This
profit or loss is then credited to your account.
Investment Strategies: Technical Analysis and Fundamental Analysis
The two fundamental strategies in investing in FOREX are Technical Analysis
or Fundamental Analysis. Most small and medium sized investors in financial
markets use Technical Analysis. This technique stems from the assumption that
all information about the market and a particular currency's future fluctuations
is found in the price chain. That is to say, that all factors which have an
effect on the price have already been considered by the market and are thus
reflected in the price. Essentially then, what this type of investor does is
base his/her investments upon three fundamental suppositions. These are: that
the movement of the market considers all factors, that the movement of prices is
purposeful and directly tied to these events, and that history repeats itself.
Someone utilizing technical analysis looks at the highest and lowest prices of a
currency, the prices of opening and closing, and the volume of transactions.
This investor does not try to outsmart the market, or even predict major long
term trends, but simply looks at what has happened to that currency in the
recent past, and predicts that the small fluctuations will generally continue
just as they have before.
A Fundamental Analysis is one which analyzes the current situations in the
country of the currency, including such things as its economy, its political
situation, and other related rumors. By the numbers, a country's economy depends
on a number of quantifiable measurements such as its Central Bank's interest
rate, the national unemployment level, tax policy and the rate of inflation. An
investor can also anticipate that less quantifiable occurrences, such as
political unrest or transition will also have an effect on the market. Before
basing all predictions on the factors alone, however, it is important to
remember that investors must also keep in mind the expectations and
anticipations of market participants. For just as in any stock market, the value
of a currency is also based in large part on perceptions of and anticipations
about that currency, not solely on its reality.
Make Money with Currency Trading on FOREX
FOREX investing is one of the most potentially rewarding types of investments
available. While certainly the risk is great, the ability to conduct marginal
trading on FOREX means that potential profits are enormous relative to initial
capital investments. Another benefit of FOREX is that its size prevents almost
all attempts by others to influence the market for their own gain. So that when
investing in foreign currency markets one can feel quite confident that the
investment he or she is making has the same opportunity for profit as other
investors throughout the world. While investing in FOREX short term requires a
certain degree of diligence, investors who utilize a technical analysis can feel
relatively confident that their own ability to read the daily fluctuations of
the currency market are sufficiently adequate to give them the knowledge
necessary to make informed investments.
Rich McIver is a contributing writer for The Forex Blog: Currency
Trading News (http://www.forexblog.org
).
Article Source: http://EzineArticles.com/?expert=Rich_McIver
Announcement:FXCM Forex Feed
by Howard Arrington
Ensign Windows includes a free Forex feed from FXCM (Forex
Capital Markets), who is a major player in the forex markets. This
free feed
has real-time quotes on the following 56 currency pairs.
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AUD |
CAD |
CHF |
DKK |
EUR |
GBP |
HKD |
JPY |
NZD |
SGD |
USD |
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| GBP |
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The real-time feed from FXCM updates with every change in a Bid or Ask.
It is not a snap shot type of feed which updates every few seconds. This
sets Ensign's implementation apart from the majority of others who claim to have
a forex feed into their software. Ensign's implementation also has a
refresh capability for tick based charts, intra-day, daily, weekly and monthly
charts. Tick refresh is available for the last 100,000 ticks on each
symbol pair. Intra-day refresh is available for the last 4
months. Daily, weekly and monthly refresh is available for the last
14 years (from May 1993 for most symbols).
The coverage of symbols are 28 symbol pairs from FXCM, and the inverse
relationship for these same 28 pairs. So while FXCM broadcasts data for 28
symbols, the feed from Ensign will give quotes on 56 symbols. These 56 symbols will show on the Forex market group quote page. Click the big Q
button for a quote page. Click the Forex market group button on the bottom
of the quote page to show the Forex Currencies.
Steps to take:
To get the FXCM feed, download the latest version of Ensign
Windows. Click menu File | Open | Internet Services and select
the Download tab.
On this form, wait for the column of Version Dates to fill
in. Select the bullet for Ensign Program Upgrade, and then click the
Download button. The Ensign Windows program will download an
upgrade, exit, and begin the installation. Accept
the default prompts which will install the Ensign upgrade.
When the installation is finished, rerun Ensign Windows.
Now click menu Setup | Connection. Enter 10000 as
the Port value, and 206.71.64.14 as the IP address. Check the
box for the FXCM feed and Ensign will connect to the
Ensign servers and process the FXCM feed. Uncheck the FXCM feed box to stop the data feed.
If you experience difficulty in getting the FXCM feed to flow,
you might try unchecking and rechecking the FXCM feed check box .
Ensign's implementation processes the FXCM feed in parallel with the data
feed you subscribe to. You can have a feed from eSignal, IQFeed,
CyberTrader, or Interactive Brokers and optionally elect to also have the 56 forex symbols from FXCM by checking the FXCM feed checkbox. The FXCM symbols will be automatic,
meaning there is no need to enter any symbols on the Setup | Manager watch list.
Those who will use just the FXCM feed should select Ensign Internet as the Data
Source.
Users are welcome to track the forex symbols from FXCM, even though they do
not have an account with FXCM. The feed is from FXCM to Ensign's servers
in Salt Lake City. When you connect to the feed, you are connecting to
Ensign's servers, and not to any FXCM server. The historical refresh data is also
maintained in a database on the Ensign servers.
Symbol properties:
The symbol format will be two currency roots separated by a
slash and have a + character as a suffix. This will make the symbols from
FXCM unique and not conflict with forex symbols from any of the supported data
vendor feeds.
One word of explanation is that Ensign has imposed a 2 decimal shift on the
Yen quotes. This makes it standard with the way Ensign quotes Yen
currencies from our other data feeds. The JPY/USD+ quote shows 0.83794
when the actual price is 0.0083794. The extras 2 leading zeros in
the price just make the price harder to read. So Ensign quotes it as
0.83794 by multiplying the actual quote by 100. This format is easier on
the eyes and mind and takes less space to show on a chart scale.
Forex is 24 hours, so here is example market hours page for the EUR/USD+
symbol.
The forex symbols can be shown on quote pages, snap quotes, time
and sales, and charted in any time frame.
Ensign is charting the changes in the Bid price. There is
no volume with each tick, so a default volume of 1 is used. The
volume that shows is a tick count total and it is treated as at the Bid on a
down tick and at the Ask on an up tick.
Why do quotes differ?:
Equity and Futures traders are used to prices being the same at any
given time regardless of which firm they are trading through or charting
provider they are using and often assume the same holds true for spot FX.
Because the spot FX market is decentralized, meaning it lacks a single
exchange where all transactions are conducted, each FX dealer (market
maker) may quote slightly different prices on their markets.
Therefore, any prices displayed by a third party charting provider, which
does not employ the market maker's data feed, will reflect indicative
prices and not necessarily dealing prices.
Market watchers, such as S&P or ESignal, compile indicative quotes as
a proxy for the actual market movement. These prices are derived
from a host of contributors such as banks and clearing firms, which may or
may not reflect where FXCM's market is. Ensign Windows uses the FXCM
data feed and will reflect prices that mirror the prices in FXCM's Trading
Station dealing rates window.
Free Trial: You are invited to download Ensign Windows from
the Ensign web site and give the program a thorough evaluation.
Click this link for Download
Instructions. Installing
the program gives you a 1 week trial use period. After that we hope
you will subscribe. The program use fee is $1.35 per day for the
balance of this month, and then $39.95 per month thereafter until you
notify Ensign billing you want to cancel. Use the built in
Order form to initiate a subscription.
Trading Tip:Make 2007 Your Breakout Year!
by Judy Mackeigan, aka Buffy
Are you reading that title and thinking, "I've been
trying to do that for so long!" or "Said that last
year." "Trading is the hardest thing I have every tried to
do." Well, you are what you think! So let's
discuss some constructive actions you can do to get on the
super highway to success and off the old dirt back road.
This article is more for the traders that think it is impossible to have
a winning week. For those of you who have winning weeks and then
give it all back, the problem is often one of the following:
a different market, not knowing when not to trade which is a trading
decision, and/or patience to let your setup come to you.
The first step is to stop trading real money. This will allow you
to focus entirely on learning to trade and also stop the psychological
damage that usually goes with the frustration of losing.
Do you expect too much?
There are two areas many traders expect too much from. The first
area is from your system. Your system's job it to give high probability signals for you to take. Will they all be
winners? NO! But they should all have the odds with them.
Traders run around trying new things all the time trying to find the
system that doesn't miss a trade or signal a loser. Perfectionism
is NOT possible in the market. Your job is to take your setups,
win some money, lose some money and make more than you lose.
Constantly changing your system often shows an unwillingness to
deal with an emotional issue that might be holding you back. The
most common one is taking a loss for what it is and not a direct attack
on your ego.
The second area is from yourself and where you are on
the learning curve. Too many traders think trading looks easy and
wonder why they can't "get it" even though they have heard
"Trading is one of the hardest but yet most rewarding endeavors you
will ever learn to do." Accept where you are on the learning
curve now. Don't put a time deadline on yourself as to when you
will be ready to trade live. Once you accept that it
will happen when it happens, the learning becomes so much easier without
the pressure.
Settle on a system and have setup rules
When watching the charts posted daily, you will see traders progress
through the learning process of setting up what works for them.
Setups and exits are working. Then the market changes, so they
change their
charts as they go off in search of the perfect system.
There is NO such thing!! If you do change things when at this
stage of learning, it is recommended you run it side by side your normal
charts. By doing this you transfer your knowledge to the newly
defined indicators and may also better judge how well they work.
The traders who are constantly change their charts or system, do not
believe THEY are the Holy Grail they so desperately seek.
Nobody or anything else. You control whether money goes into or
out of your pocket.
Your system should be in your comfort zone. Do you like
scalping, intraday trend or counter trend, long or short time frames,
etc? Trying
to learn a system that isn't in your comfort zone usually doesn't work
as you are now fighting the emotions of being out of your comfort zone
and the emotions of trading. Finding the answers takes time.
Start with a trading system that makes sense and talks to you
when you look at a chart. Many systems work. Pick one
and learn it. Stick with it until you know it well. Not
just the basics, but learn all the little nuances too. You will develop a
feel for what the market might be going to do next. Over
time you will add and remove tools from your trading
system to come up with your own trading cocktail. The daily
posts show the confluence of all the various methods. They show
the same area for entries/exits, whether the method is price
action, pivots, trend lines, Fibonacci levels, CCI, bands or 2XBline, etc. A
good system will usually work on all time frames and with most markets
with little or no adjusting.
Now you have a system and it is time to pick a setup. It is
recommended when you start out to pick a setup that it is with the
trend. By doing this, entries and exits are more forgiving.
Often the setup time frame is picked by the reward you wish to
receive by being right. All you need to own is one
setup to be profitable. You do not need every point the market is
offering. Going after all the points the market offers, will
cause you to try to trade too many different types of setups at
once. Pick ONE setup that you like and take it to
profitability in your real account. Once that is accomplished,
then you can add another setup. Find the easiest setup for you to
see and practice it with simulation trading before trading the
setup in your real account. Watch any other trade
setup as a future one to learn. Do not sit there and
feel emotions over missed money. Missed money is better than lost
money. Patience -- you can't learn to run before you can even
walk.
Are you marking charts?
By annotating your charts, you are training your brain to see your setup
on your charts with your colors. These should be confirmed as
being correct. You wouldn't want to have to undo all that learning from
a misunderstanding. After two weeks you will find it much easier
to notice things without having them marked on the chart.
By posting charts marked with your entry/exit for others to
evaluate, constructive
comments may be made that might have kept you out of the losing
trade or in a winning trade longer, thereby increasing your knowledge.
It also shows an acceptance on your part to making mistakes.
Do you have rules for losers?
A loss is not a personal attack on your ego. It is part of the
business of trading. Keep your losses small. When you
do have a loss, learn to immediately forget it and ask yourself, "Do
I want to reenter? Is my setup still valid?"
An example of rules might be:
1) One trade not following rules -- take a break - no
questions asked.
2) Three losers for the day -- Quit! Accept
that, for whatever reason, you are not dancing with the market. You
are just
getting your toes stepped on. To continue trading often
does some emotional damage that will have to be dealt with later. Take
the rest of day off, or just observe and learn. Later analysis
might show 1) not your type of market 2) you didn't have the
patience to wait for your setup to come to you or 3) lack of focus, i.e. phone
call needing to be made, errand that has to be run. Basically,
the feeling that you should be doing something else is usually not
a good time to trade.
There is a story about a trader who had done very well. He
rewarded himself by purchasing a fancy new car which he picked the
from the dealer on a Friday morning. He made the
decision to trade that day and enjoy the car after markets closed.
He experienced his worst losing day in months because his
focus was on playing with the new car in the parking lot and not on
what his charts were telling him.
The other big focus distraction can be results thinking.
Is this trade going to be a winner or loser? If your results for
today will make your first profitable week, or month, then you are
focused on that and not what the market is telling you.
Chances
are your trading will not be profitable. Even when you are in
a trade, if you find yourself thinking of anything else other than the
listening to the market, then it is time to exit the trade!
Try asking yourself questions to maintain your focus.
Have you practiced by paper trading first?
Today with the ability to practice, practice, practice before using real
money, there is no reason to pay the expensive tuition often
required years ago. Many traders feel it isn't the
same emotionally, and they are right unless you have the correct
mental approach to paper trading. You want to have the same
attitude towards paper trading that athletes have for all
the training they do for their one race that counts for the Olympic
gold.
It is practice that not only trains the brain to see your
setups without thinking, but also by using discipline numbers,
will give you direct feedback on how you did with your system with
what the market was offering that day. By tracking these
discipline numbers daily and consistently doing well, you
will find you have more confidence in yourself and your
chosen setup when you go live in your real account. Do
not go live until you can trade the various types of markets
successfully at actual speed. If you don't use actual speed for
your final "test", you might find yourself doubting
if you learned patience to wait for your setup.
Have you kept track of your progress?
Don't compare yourself to others...there is always someone better.
Compare your progress to yourself and where you were a month ago.
You can't know where you are now if you don't know where you were, if
you don't keep a record. By tracking your progress,
you will know when you are ready to go live and have the confidence
to do so.
There was a trader who was so proud of his 5 points for the day
when he first started trading futures. Then someone
said they had made 20. What an attitude shift on his part!
He went from being elated over a job well done
to 'oh my, what was wrong to have missed that much.' Luckily a
lesson was learned that day. He is still learning.
The trader with the 20 points was the goal he was
working for. How silly for him to expect to already be there!
Do you have trouble pulling the trigger?
This can be a problem both in simulation and live. It
usually says you don't have total confidence in yourself and/or your
system. If you have been keeping track of your progress as
suggested above, just tell yourself, you can't win the game if you
aren't even playing! Wait for your setup as defined by
your rules - you know, the one you can see from across the room -
and then acknowledge your fear but tell yourself you have done
your homework, you have paper traded profitably, you have learned
how to manage a trade, and then hit the order button!
Switching from paper trading to a real account
When you feel you are ready, start out with one trade a day.
It is amazing how much this will reduce the pressure of trading a
full day and will also help you pick your best setups and not
overtrade. When you have a couple of consecutive weeks
(months) of profitability or feel comfortable then go to two
trades a day. At each step you may unveil more
emotional issues to deal with. Accepting losses seems to be
the biggest problem. Not being able to accept losses as part
of the business of trading and taking them as a personal blow to
your ego is why many run around tweaking their system,
trying new systems etc. Stop, and instead of running around,
just deal with
the problem of accepting losses. No one is saying you
have to like losing. What is being said is that you need to accept losses as part
of the game and not a personal attack on your ego. Be
happy you took the loss because you did your main job - preserved your
capital to be around for tomorrow.
Do you put in quality screen time?
You feel you are staring at charts for hours on end and you should know
how to trade by now. Not true. Quality time is more
important than quantity time. Have a plan on what you are going to
work on when you sit down. Make sure to include reviewing losers. I
know you rather go over your winners but you will learn more from your
losers. Entries, exits, staying in a trend trade are a few of
the things you might decide to work on. If you are having
trouble in an area, post charts and ask questions of fellow traders.
If you don't know what you are missing, how can you progress?
Silliest thing is to do the same old thing and expect different results.
You are what you think!
Discourage negative thinking! You are what you think.
Don't use "I can't..., or I will never....".
If you think you can't, then you won't and the whole process of learning
becomes harder. If you catch yourself making negative statements, add
"until now" to the sentence as Nqoos recommends. This at
least tells the brain there is hope you can. Look in the mirror
in the morning and tell yourself, "I am a successful
trader." Be who you want to be. Stop negative thoughts
by thinking positive ones.
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Treat each trade like the first one of the day.
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Focus on the trade and what the market is telling you.
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Keep your losses small. Let the winners run.
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Do your homework by marking charts and posting for discussion.
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Ask questions -- there is no such thing as a silly one.
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You will see the result in your account balance.
You, and only you, can make 2007 your breakout year!
Buffy can be reached in the BLine chat room #2 in the
Ensign Windows program or by using the free EChat
program.
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