Forex Day Trading - When To Stay Out Of The Markets

A lot of forex traders like to trade the shorter time frames such as the 1 and 5 minute charts, but it is very difficult to make consistent profits this way. This is because you have to contend with all the noise on these charts where the price just seems to drift aimlessly in a seemingly random fashion. Therefore there is one golden rule which you should stick to when trading these short time frames.

Basically you should always stay out of the markets when the ADX technical indicator is below 20. This indicator tells you whether or not a clear trend is in place and the general rule is that if it's below 20 then there is no trend.

So therefore you can instantly tell whether you should be trading the markets or not. Of course when the ADX is below 20 it's still worth keeping an eye on this particular currency pair because a rise above 20 could signal the start of a new trend, particularly if the directional movement indicators cross at the same time.

The ADX indicator is a very useful indicator because not only does it keep you out of flat trendless markets, but it can also help you exit your positions at the optimum point. The key here is to exit your position as soon as the ADX starts to turn down, particularly if it is above 40 or 50 for example, because this indicates that a trend is running out of momentum.

Here's A Simple Way To Increase Your Forex Trading Profits…

Many people spend years looking for a trading system that will make them consistent profits but the fact is that most people ultimately fail to do so. However the truth is that even the most basic of trading systems can be made into a money-making machine if you follow this one simple strategy.

Successful forex trading is all about probabilities, and finding high probability set-ups is the key to making winning trades on a consistent basis. Indeed this is why technical analysis is so popular because it's basically a tool that enables you to find instances where several key indicators correspond to give a clear buy or sell signal.

So how do you increase your overall profits?

Well assuming you are currently using some kind of trading system, take a few minutes to look through some of the positions you've taken in recent weeks. You should find some trades that you took that turned out to be winners and you remember being extremely confident about when you opened the trade. You should also find some losing trades which you didn't really have any confidence in before placing the trade.

Now to increase your profits you should only be trading these high probability set-ups that you are extremely confident in, based on past performance and experience. Therefore before each trade what you want to do is to give each potential trade a ranking out of 10 based on how confident you are that a position will turn out to be a winning one.

It's unlikely that you will ever give a trade a 10 rating because no-one can be 100% sure about a trade, but you should get plenty of 8s and 9s. Now you should concentrate on only trading these high ranking positions, ie 8 and above, and ignore the rest.

This simple strategy can potentially have a dramatic effect on your overall profitability and can even turn an unprofitable trading system into a profitable one so it's well worth doing if you want to increase your success rate.

The 3 Shortcuts To Becoming A Profitable Forex Trader

If you want to become a profitable forex trader, then there are various ways you can go about this. The most obvious way is to develop your own profitable trading system(s), which is what I did, but this can take several years and can turn out to be a very expensive learning curve. So with that in mind, here's 3 shortcuts that will help you to become a profitable trader a lot quicker:

1. Subscribe to a forex signals service.

Forex signals are extremely popular amongst forex traders because they allow you to profit from the forex markets without having to actually come up with your own profitable trading system. All you do is subscribe to a reputable signal provider and trade the signals provided. The only problem is that I would say the majority of signal providers are not actually that profitable, and the ones that are are few and far between.

2. Find a mentor.

This is arguably the best shortcut because finding a professional trader who can teach you how to trade profitably could set you up for life. It will cut years of your road to success and you will learn how to trade like a professional. Of course it's not always easy finding a mentor who lives in your area but you can always go online and seek out the real pros and either ask for advice or offer them money to mentor you.

3. Buy a profitable trading system or robot.

Finally the other option is to simply buy a profitable trading system or robot, or copy a system used by other pro traders. For example, you could use my trading system if you so wish (see right for more details) or you could visit some of the forex forums and chatrooms to find out which systems people are using. Alternatively you could buy one of the many systems that are currently being sold online. For example, two excellent products I've recently purchased from Dean Saunders, 10 Minute Forex Wealth Builder and Blade Forex Strategies reveal some excellent trading methods you can use to trade the markets.

1 Minute And 5 Minute Charts - How Useful Are They?

1 minute and 5 minute charts appeal to so many traders because they can signal lots of short-term trades. Therefore they are ideally suited to traders who like to scalp the markets, but are they very profitable?

Well I've been trading forex for a good few years now and despite coming up with numerous short-term strategies that initially appeared profitable, ultimately they have all failed. This is why I still predominantly trade off 4 hour charts, using the daily charts for guidance.

I haven't once come across a consistently profitable system that uses 1 minute and/or 5 minute charts. I'm sure there are traders out there who are raking in lots of cash by taking multiple positions every day based on these charts, but I've yet to meet any of them.

The major problem with them is that so much of the data from them is just noise, and you get so many false signals during the average day that it is very difficult to make any real money. Even the very best technical indicators are often rendered meaningless when used over such a short timescale, and even if correct signals are given the subsequent move may only turn out to be just 5-10 points.

Plus you've got the spread to contend with because you will often need 3 or 4 points just to break even with a lot of forex brokers. Furthermore if you trade a lot of in-and-out positions, then it's usually only a matter of time before your broker will be on to you because most forex brokers don't like their customers making lots of very short-term trades.

I personally prefer my style of trading which involves 4 hour charts and generally will only consider adding a new system to my armoury if it uses 30 minute or 1 hour charts and above. This way technical indicators are generally a lot more dependable, and therefore profitable. Plus you can still be a daytrader if you so wish even using 1 hour charts You don't need to use the whipsawing 1 minute or 5 minute charts.

If you know of a trading system that is consistently profitable using these charts, I'd love to hear from you. In the meantime if you would like to read about my 4 hour trading strategy please subscribe to my newsletter above for instant access.

Becoming A Successful Forex Trader Requires Money And Motivation

If you want to become a top forex trader then you will find that there is a lot to learn. Making consistent profits from forex trading is not easy by any means, but as with anything the more experience you have, the easier it becomes.

That is why two of the most important things you need if you want to become a successful forex trader is money and motivation.

Let's start with money first of all. You obviously need a little bit of capital to start off with but you also need to have some money in reserve if needed. This is because almost everybody blows their initial bankroll learning to trade the markets.

That's not necessarily a bad thing because it's a great learning experience. Losing money is not a nice feeling and so it motivates you not to lose any more money in the future. Therefore you start to use tight stop losses and adopt good money management techniques.

Also because few people start making profits straight away, you also need a lot of motivation and determination to succeed. You have to accept that the most successful traders probably spent hours on end testing out different strategies before they found one which made them profits, and probably lost a lot of money in the process. I know I certainly did.

So don't be put off if you initially lose money because as long as you can stay in the game long enough to refine your trading strategy, and have a willingness to succeed, then there's no reason why you can't become a top forex trader and make substantial profits.

Forex Trading Tips - The Advantages of Trading Forex - Part 1

There are many different advantages to trading forex instead of futures or stocks, such as:

1. Lower Margin

Just like futures and stock speculation, a forex trader has the ability to control a large amount of the currency basically by putting up a small amount of margin. However, the margin requirements that are needed for trading futures are usually around 5% of the full value of the holding, or 50% of the total value of the stocks, the margin requirements for forex is about 1%. For example, margin required to trade foreign exchange is $1000 for every $100,000.

What this means is that trading forex, a currency trader's money can play with 5-times as much value of product as a futures trader's, or 50 times more than a stock trader's.

When you are trading on margin, this can be a very profitable way to create an investment strategy, but it's important that you take the time to understand the risks that are involved as well.

You should make sure that you fully understand how your margin account is going to work. You will want to be sure that you read the margin agreement between you and your clearing firm. You will also want to talk to your account representative if you have any questions.

The positions that you have in your account could be partially or completely liquidated on the chance that the available margin in your account falls below a predetermined amount.

You may not actually get a margin call before your positions are liquidated.
Because of this, you should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk.

2. No Commission and No Exchange Fees

When you trade in futures, you have to pay exchange and brokerage fees. Trading forex has the advantage of being commission free. This is far better for you. Currency trading is a worldwide inter-bank market that lets buyers to be matched with sellers in an instant.

Even though you do not have to pay a commission charge to a broker to match the buyer up with the seller, the spread is usually larger than it is when you are trading futures.

For example, if you are trading a Japanese Yen/US Dollar pair, forex trade would have about a 3 point spread (worth $30). Trading a JY futures trade would most likely have a spread of 1 point (worth $10) but you would also be charged the broker's commission on top of that. This price could be as low as $10 in-and-out for self-directed online trading, or as high as $50 for full-service trading. It is however, all inclusive pricing though.

You are going to have to compare both online forex and your specific futures commission charge to see which commission is the greater one.

3. Limited Risk and Guaranteed Stops

When you are trading futures, your risk can be unlimited. For example, if you thought that the prices for Live Cattle were going to continue their upward trend in December 2003, just before the discovery of Mad Cow Disease found in US cattle.

The price for it after that fell dramatically, which moved the limit down several days in a row. You would not have been able to leave your position and this could have wiped out the entire equity in your account as a result. As the price just kept on falling, you would have been obligated to find even more money to make up the deficit in your account.

Forex Trading Tips - Brokers That You Need To Avoid

Just like there are brokers that you want, there are also brokers that you will want to stay away from. For example brokers who are prone to prematurely buying or selling near preset points (commonly referred to as sniping and hunting) are trifling things that are committed by brokers who only seek to increase profits.

Obviously, no broker would actually admit to doing this, but there are ways to know if a broker has committed this offense.

Unfortunately, the only way that you can really determine which brokers do this and which brokers don't is to talk to fellow traders. There is no actual list or organization that reports this kind of activity. The point here is that you have to talk to others in person or visit online discussion forums to find out who is an honest broker.

Strict Margin Rules

When you are trading with borrowed money, your broker should have a say in how much risk you are able to take. With this in mind, your broker can buy or sell at its discretion, which can be a really bad thing for you.

Let's just say that you have a margin account, and your position takes a headlong nosedive before it begins to rebound to all-time highs. Even if you have enough cash to cover it, some brokers will liquidate your position on a margin call at that low. This action on their part can cost you dearly. You talk to others in person or visit online discussion forums to find out who the honest brokers are.

Signing up for a FOREX account is a great deal like getting an equity account. The only major difference is that, for FOREX accounts, you are obligated to sign a margin agreement.

This agreement basically says that you are trading with borrowed money, and, because of this the brokerage firm has the right to interfere with your trades in order to protect its interests. Once you sign up, all you have to do is fund your account and you'll be ready to trade right away.

What are the Most Important Economic Indicators to Track in Forex? Important leading economic indicators?

The traders buying and selling in the forex market rely largely on the information contained in the economic reports released from time to time. They give different indications to the market about the improvement or decline in the country’s economic health. The forex trader has to follow these reports closely, in order to improve his trade. All of these economic reports serve a specific purpose and can be of use in one situation or the other. However, some of the more important economic reports are:

1. The Gross Domestic Product (GDP): GDP is considered as the most important measure of the country’s economy. The two reports which are issued a couple of months before the final figures of GDP are very important. These include the advance report and the preliminary report. They are given a lot of significance by the forex traders.

2. Retail Sales: This report gauges the sum receipts of all retail stores in the entire country. This calculation is commonly developed from a diverse sample of retail stores throughout the nation.

3. Industrial Production: Industrial report depicts the change in production of mines, factories and utilities within a nation. The traders who closely follow this report are normally concerned with utility production.

4. Consumer Price Index (CPI): The CPI is a measure of the average price level paid by urban consumers for a fixed bunch of goods and services. A range of user fees and taxes directly connected with the costs of specific goods also form part of the CPI.

Most important economic indicator to track is undoubtedly Gross Domestic Product (GDP), as agreed by most of the economists. Other key indicators comprise Industrial Production, Purchasing Managers Index (PMI), Producer Price Index (PPI), Consumer Price Index (CPI), Durable Goods Orders, Employment Cost Index (ECI), Retail Sales and Housing Starts.

These economic indicators are essential for the forex traders as they measure the condition of the economy of any given country and an experienced trader judges the future trends in the economic market by studying these indicators.

Forex Trading Tips - Why Trade Forex?

The cash/spot FOREX markets possess certain unique attributes that offer an unmatched potential for profitable trading in any market condition or any stage of the business cycle. It leaves one to wonder why bother? The answer to that is very simple. It boasts:

A 24-hour market: A trader has the chance to take advantage of all of the profitable market conditions at any time which means that there is no waiting for the 'opening bell' like the exchange.

Highest liquidity: The FOREX market is the most liquid market in the world. That means that a trader can enter or exit the market whenever they want during almost any market condition minimal execution barriers or risk and no daily trading limit.

High leverage: A leverage ratio of up to 400 is normal when compared to a leverage ratio of 2 (50% margin requirement) in the equity markets. Of course, this makes trading in the cash/spot forex market awkward a swell because it makes the risk of the down side loss much higher in the same way that it makes the profit potential on the upside much prettier.

Low transaction cost: The retail transaction cost (the bid/ask spread) is actually less than 0.1% (10 pips) under the normal market conditions. At larger dealers, the spread could be less than 5 pips, and may expand a great deal in fast moving markets.

Always a bull market: A trade in the FOREX market means selling or buying one currency against another. In essence, a bull market or a bear market for a currency is defined in terms of the outlook for value against other currencies. If the outlook is positive, you get a bull market where a trader profits by buying the currency against other currencies. However, if the outlook is negative, we have a bull market for other currencies and a trader profits being forced to selling the currency against other currencies.

In either case, there is always a bull market trading opportunity for a trader.

Inter-bank market: The foundation of the FOREX market consists of a global network of dealers that communicate and trade with their clients through electronic networks and telephones. There are no organized exchanges like in futures that are there to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets.

The FOREX market actually works a lot like the way the NASDAQ market in the United States operates, and because of this, it is also referred to as an over the counter or OTC market.

No one can corner the market: The FOREX market is so large and has so many participants that no single trader, even a central bank, can control the market price for an extended period of time. Even when interventions are conducted by mighty central banks are getting to be increasingly ineffectual and short-lived. This means that central banks are becoming less and less inclined to intervene to manipulate market prices.

It is Unregulated: The FOREX market is seen as an unregulated market although the operations of major dealers like commercial banks in money centers are regulated under the banking laws.

The daily operations of retail FOREX brokerages are not regulated under any laws or regulations that are specific to the FOREX market, and in fact, many of these types of establishments in the United States do not even report to the Internal Revenue Service.

The currency futures and options that are actually traded on exchanges like Chicago Mercantile Exchange (CME) are under the regulation in the same manner that other exchange-traded derivatives are regulated.

Forex Trading Tips Part-2

The second and final part of this report clearly and simply details more essential tips on how to avoid the pitfalls and start making more money in your forex trading.

1. Take it like a man - If you decide to ride a loss, you are simply displaying stupidity and cowardice. It takes guts to accept your loss and wait for tomorrow to try again. Sticking to a bad position ruins lots of traders - permanently. Try to remember that the market often behaves illogically, so don't get commit to any one trade; it's just a trade. One good trade will not make you a trading success; it's ongoing regular performance over months and years that makes a good trader.
   
2. Focus - Fantasising about possible profits and then "spending" them before you have realised them is no good. Focus on your current position(s) and place reasonable stop losses at the time you do the trade. Then sit back and enjoy the ride - you have no real control from now on, the market will do what it wants to do.
   
3. Don't trust demos - Demo trading often causes new traders to learn bad habits. These bad habits, which can be very dangerous in the long run, come about because you are playing with virtual money. Once you know how your broker's system works, start trading small amounts and only take the risk you can afford to win or lose.
   
4. Stick to the strategy - When you make money on a well thought-out strategic trade, don't go and lose half of it next time on a fancy; stick to your strategy and invest profits on the next trade that matches your long-term goals.
   
5. Trade today - Most successful day traders are highly focused on what's happening in the short-term, not what may happen over the next month. If you're trading with 40 to 60-point stops focus on what's happening today as the market will probably move too quickly to consider the long-term future. However, the long-term trends are not unimportant; they will not always help you though if you're trading intraday.
   
6. The clues are in the details - The bottom line on your account balance doesn't tell the whole story. Consider individual trade details; analyse your losses and the telling losing streaks. Generally, traders that make money without suffering significant daily losses have the best chance of sustaining positive performance in the long term.
   
7. Simulated Results - Be very careful and wary about infamous "black box" systems. These so-called trading signal systems do not often explain exactly how the trade signals they generate are produced. Typically, these systems only show their track record of extraordinary results - historical results. Successfully predicting future trade scenarios is altogether more complex. The high-speed algorithmic capabilities of these systems provide significant retrospective trading systems, not ones which will help you trade effectively in the future.
   
8. Get to know one cross at a time - Each currency pair is unique, and has a unique way of moving in the marketplace. The forces which cause the pair to move up and down are individual to each cross, so study them and learn from your experience and apply your learning to one cross at a time.
9. Risk Reward - If you put a 20 point stop and a 50 point profit your chances of winning are probably about 1-3 against you. In fact, given the spread you're trading on, it's more likely to be 1-4. Play the odds the market gives you.
   
10. Trading for Wrong Reasons - Don't trade if you are bored, unsure or reacting on a whim. The reason that you are bored in the first place is probably because there is no trade to make in the first place. If you are unsure, it's probably because you can't see the trade to make, so don't make one.
    
11. Zen Trading- Even when you have taken a position in the markets, you should try and think as you would if you hadn't taken one. This level of detachment is essential if you want to retain your clarity of mind and avoid succumbing to emotional impulses and therefore increasing the likelihood of incurring losses. To achieve this, you need to cultivate a calm and relaxed outlook. Trade in brief periods of no more than a few hours at a time and accept that once the trade has been made, it's out of your hands.
    
12. Determination - Once you have decided to place a trade, stick to it and let it run its course. This means that if your stop loss is close to being triggered, let it trigger. If you move your stop midway through a trade's life, you are more than likely to suffer worse moves against you. Your determination must be show itself when you acknowledge that you got it wrong, so get out.
    
13. Short-term Moving Average Crossovers - This is one of the most dangerous trade scenarios for non professional traders. When the short-term moving average crosses the longer-term moving average it only means that the average price in the short run is equal to the average price in the longer run. This is neither a bullish nor bearish indication, so don't fall into the trap of believing it is one.
    
14. Stochastic - Another dangerous scenario. When it first signals an exhausted condition that's when the big spike in the "exhausted" currency cross tends to occur. My advice is to buy on the first sign of an overbought cross and then sell on the first sign of an oversold one. This approach means that you'll be with the trend and have successfully identified a positive move that still has some way to go. So if percentage K and percentage D are both crossing 80, then buy! (This is the same on sell side, where you sell at 20).
    
15. One cross is all that counts - EURUSD seems to be trading higher, so you buy GBPUSD because it appears not to have moved yet. This is dangerous. Focus on one cross at a time - if EURUSD looks good to you, then just buy EURUSD.
    
16. Wrong Broker - A lot of FOREX brokers are in business only to make money from yours. Read forums, blogs and chats around the net to get an unbiased opinion before you choose your broker.
    
17. Too bullish - Trading statistics show that 90% of most traders will fail at some point. Being too bullish about your trading aptitude can be fatal to your long-term success. You can always learn more about trading the markets, even if you are currently successful in your trades. Stay modest, and keep your eyes open for new ideas and bad habits you might be falling in to.
    
18. Interpret forex news yourself - Learn to read the source documents of forex news and events - don't rely on the interpretations of news media or others.
    

Forex Trading Tips

Why do hundreds of thousands online traders and investors trade the forex market every day, and how do they make money doing it?

This two-part report clearly and simply details essential tips on how to avoid typical pitfalls and start making more money in your forex trading.

1. Trade pairs, not currencies - Like any relationship, you have to know both sides. Success or failure in forex trading depends upon being right about both currencies and how they impact one another, not just one.
   
2. Knowledge is Power - When starting out trading forex online, it is essential that you understand the basics of this market if you want to make the most of your investments.
   The main forex influencer is global news and events. For example, say an ECB statement is released on European interest rates which typically will cause a flurry of activity. Most newcomers react violently to news like this and close their positions and subsequently miss out on some of the best trading opportunities by waiting until the market calms down. The potential in the forex market is in the volatility, not in its tranquility.
   
3. Unambitious trading - Many new traders will place very tight orders in order to take very small profits. This is not a sustainable approach because although you may be profitable in the short run (if you are lucky), you risk losing in the longer term as you have to recover the difference between the bid and the ask price before you can make any profit and this is much more difficult when you make small trades than when you make larger ones.
   
4. Over-cautious trading - Like the trader who tries to take small incremental profits all the time, the trader who places tight stop losses with a retail forex broker is doomed. As we stated above, you have to give your position a fair chance to demonstrate its ability to produce. If you don't place reasonable stop losses that allow your trade to do so, you will always end up undercutting yourself and losing a small piece of your deposit with every trade.
   
5. Independence - If you are new to forex, you will either decide to trade your own money or to have a broker trade it for you. So far, so good. But your risk of losing increases exponentially if you either of these two things:
   Interfere with what your broker is doing on your behalf (as his strategy might require a long gestation period);
   Seek advice from too many sources - multiple input will only result in multiple losses. Take a position, ride with it and then analyse the outcome - by yourself, for yourself.
   
6. Tiny margins - Margin trading is one of the biggest advantages in trading forex as it allows you to trade amounts far larger than the total of your deposits. However, it can also be dangerous to novice traders as it can appeal to the greed factor that destroys many forex traders. The best guideline is to increase your leverage in line with your experience and success.
   
7. No strategy - The aim of making money is not a trading strategy. A strategy is your map for how you plan to make money. Your strategy details the approach you are going to take, which currencies you are going to trade and how you will manage your risk. Without a strategy, you may become one of the 90% of new traders that lose their money.
   
8. Trading Off-Peak Hours - Professional FX traders, option traders, and hedge funds posses a huge advantage over small retail traders during off-peak hours (between 2200 CET and 1000 CET) as they can hedge their positions and move them around when there is far small trade volume is going through (meaning their risk is smaller). The best advice for trading during off peak hours is simple - don't.
   
9. The only way is up/down - When the market is on its way up, the market is on its way up. When the market is going down, the market is going down. That's it. There are many systems which analyse past trends, but none that can accurately predict the future. But if you acknowledge to yourself that all that is happening at any time is that the market is simply moving, you'll be amazed at how hard it is to blame anyone else.
   
10. Trade on the news - Most of the really big market moves occur around news time. Trading volume is high and the moves are significant; this means there is no better time to trade than when news is released. This is when the big players adjust their positions and prices change resulting in a serious currency flow.
    
11. Exiting Trades - If you place a trade and it's not working out for you, get out. Don't compound your mistake by staying in and hoping for a reversal. If you're in a winning trade, don't talk yourself out of the position because you're bored or want to relieve stress; stress is a natural part of trading; get used to it.
    
12. Don't trade too short-term - If you are aiming to make less than 20 points profit, don't undertake the trade. The spread you are trading on will make the odds against you far too high.
    
13. Don't be smart - The most successful traders I know keep their trading simple. They don't analyse all day or research historical trends and track web logs and their results are excellent.
    
14. Tops and Bottoms - There are no real "bargains" in trading foreign exchange. Trade in the direction the price is going in and you're results will be almost guaranteed to improve.
    
15. Ignoring the technicals- Understanding whether the market is over-extended long or short is a key indicator of price action. Spikes occur in the market when it is moving all one way.
    
16. Emotional Trading - Without that all-important strategy, you're trades essentially are thoughts only and thoughts are emotions and a very poor foundation for trading. When most of us are upset and emotional, we don't tend to make the wisest decisions. Don't let your emotions sway you.
    
17. Confidence - Confidence comes from successful trading. If you lose money early in your trading career it's very difficult to regain it; the trick is not to go off half-cocked; learn the business before you trade. Remember, knowledge is power.