Monday, July 14, 2008

A great article on spot forex

The FOREX Market- Trade With Your Head Not Your Heart

Sounds simple?right? In actuality, this is the number one reason why day traders lose their shirts. They let their emotions get the best of them and end up doing something real stupid. Trust me I?ve done it.

When trading currency, you need to take yourself away from the platform and look at your trades in actual bills not numerical values on a computer screen. For example, let?s say you short the USD/JPY for a 50 mini-lot right before a data release and it tanks. The USD/JPY goes down about 50 some odd pips and now you?re up $2500 in about thirty seconds.

Now, if you were smart, you would close the position and take your profit, but you?re not and you decide to let it ride. The market goes down about another 10 pips. So, now you?re up $3000 and you still won?t close it. You think that it?s going to keep tanking and that you could make 5-6k on this one trade?wishful thinking.

All of sudden the market retraces and shoots back up 20 pips, your still up about $2000, but now you tell yourself, I?ll wait until it goes back down a few pips and then close it. Too late, the market ignites and now you?re break-even and then you?re negative. In the end you take a $500 loser, which isn?t too bad, but considering you were up $3000 it?s like you lost $3500.

Now, let?s pretend you did this same trade with actual, physical dollar bills. Now or days most people trade from a three wide spread, so let?s say that you gave a trade booker $150 cash to place a short USD/JPY 50 lot. The data is released and this man keeps giving you $50 bills and before you know it you have $3000 in your hands. In order to keep this money all you have to say is close.

You decide to press your luck and wait and the market continues to trend down and now you have $3500 cash. All of sudden, the market begins to retrace and this nice young man starts taking $50 from you each pip it retraces. How many pips does the market have to retrace before you say close? Maybe, ten pips? Once you saw actual dollar bills being taken away from you, you would throw in the towel. So, how does one improve their money management skills?

First of all, realize that you are trading real money. I?m sure you realize that the money you are trading is real money, but do you conceptualize it? When you make a few hundred or a few thousand dollars trading, do you feel like someone just handed you cash? Of course not! Every time you?re trading, no matter if you are profitable or not profitable visualize and grasp the outcome. Don?t just watch your balance and equity fluctuate; you need to relate your loss and gains to every day life.

For example, let?s say you have a 10k account and in the first week you doubled that to 20k. You need to step back and understand what you just accomplished; you just made 10k in one week by sitting in front of your computer and trading currency. Now, let?s take that money and put it to everyday use. If you were handed a free 10k, what would you do with the money?

Would you pay of some debt, by a car, put money down on a home, go on a vacation, put it towards school, I think you get the gist. All I?m saying is that 10k is yours, you own it and there is no reason you have to keep in the FOREX. You are that 10% that succeeded this week, but the law of averages states that you are most likely to be the 90% next week. If not next week then the week after and if not then, eventually you will.

If you invest 10k and your account doubles to 20k, why would you pull out 15k leave in 5k and go for the gusto? If you lose your remaining 5k who cares you still made 5k in a week at your computer. Tell me another investment where I can make 50% on a 10k investment in one week. Turn around the following week pull my initial investment and my profit and still have 5k to play with. If I hadn?t experienced this first hand then I would have never believed it. DO NOT GIVE YOUR WINNINGS BACK TO THE MARKET! It?s not worth it.

The Forex Trader Does Not Need To Be Right But He Has To Be Objective

One of the hardest lessons for any novice Forex trader to learn is that in the foreign exchange market anything can happen at any time. Because new traders spend a great deal of time learning about the mechanics of the market and focusing their attention on finding a method for predicting movements in the market, it is only natural that they also come to believe that there is a strict set of rules that govern the direction of the market at any given moment in time. Unfortunately, this is not the case and this fact catches many traders out.

Most Forex traders will use a variety of tools to judge when the moment is right to open a position and then later to close out that position, but the majority of traders will also tend to have one tool in particular which is their favorite and which they tend to rely on more than anything else. Having opened a position therefore they will tend to keep their eye on their favorite indicator and base their decisions largely on what this one indicator is telling them.

The problem comes when this indicator is telling them one thing but the other indicators start to tell them something else. They are in an open position and their favorite indicator is telling them to hold that position, but everything else is telling them to close out their position and to get out of the market. In most cases the trader will hold his ground and, more often than not, will find himself in a losing trade.

The problem here is that the trader is not viewing the market objectively but has created an expectation about the market in his own mind and is using his favorite indicator to reinforce this expectation, rather than standing back and viewing the wider picture from the information which he is receiving. In most cases he is also being urged on by the thought that he must be right, and by the profit available from this trade according to his favorite forecasting tool, and is looking at the money rather than at the market.

The foreign exchange market is by its very nature unpredictable and, if this were not the case, the market would soon collapse as we would all be making a profit on every trade we make. There are of course a raft of tools available to help us to predict the course of the market and thankfully most of the time they do a pretty good job, but sometimes even the best of tools in the hands of the most experienced traders are going to come up against an unexpected change in the direction of the market.

Getting it wrong is part and parcel of Forex trading and traders must learn to accept this as a fact of foreign currency trading. More than this however traders must learn to guard against getting themselves into a position of being proved right or wrong and this means accepting that the market has a will of its own and that the only way to trade successfully is to be totally objective about the market and to follow movements in the market rather than try to get the market go where you think it should go. is the ideal place to href="" target="_blank">learn Forex trading and provides information on a wide range of topics including currency exchange rates and the benefits of testing the water through href="" target="_blank">mini Forex trading

Learn Forex Trading - Dealing With A Market That Is Always On The Move

The foreign exchange market never stands still and, while it may move slowly at times, it is always on the move. In many ways this is one of the great benefits of Forex trading as it is this movement which provides the opportunity to profit from buying and selling global currencies, but it can also make it difficult to decide when to get into a trade, get out of a trade or simply stay out of the market altogether.

Perhaps the biggest problem with a market which is constantly presenting the trader with the opportunity to make a profit is that it plays on our natural sense of greed and this is a very real problem if you are not aware of the danger you face.

We all love to make a profit, but how much profit is acceptable? If you're in a trade and looking at a profit of $800 should you close out your position and take that profit or hang on in there for $1,000? You trade to make money and the more money the better so, when the market is moving in your favor it's only natural to want to ride the wave all the way to the beach. The problem however lies in knowing when you've hit the beach and not waiting until the undertow starts to drag you back out to sea again. Once you get caught up in the undertow it can prove to be very strong and drag you out again very quickly.

Many people enter Forex trading with a picture in their mind of just what they're going to do with all the money they make and that's no bad thing. It's extremely important to have a goal, and a plan to reach that goal, and to plant a visual picture in your mind as something concrete to aim for. However, the other side of this coin is that you may well be tempted to try to reach that goal faster than you had originally planned or to create a bigger and better goal as you go along, allowing your natural tendency towards greed creep in and begin to take control of your trading.

Another problem here is a simple failure to recognize that money does not drive the market.

Think about it for a moment. Whether you have $5,000 or $500,000 in your trading account is not going to make any difference at all to the way in which the market moves. Similarly, whether you have a $700 profit or a $700 loss in an open trading position isn't going to make the slightest difference as far as the market rising or falling is concerned.

The fact that you've done well in a trade and have made a profit of $700 doesn't mean that this is going to turn into an $800 or $900 profit if you wait a while longer. However, it's perfectly natural to find yourself caught up in your 'winning streak' and to convince yourself that there is more to come.

It's also perfectly normal to find that, having lost $700 in an open trade, your natural fear of losing is going to convince you that things will turn around if you just keep your nerve and hold on a little bit longer.

Setting yourself a goal and making a plan to reach that goal is essential, but your trading decisions need to be based not on your goal but on the market. Money should have nothing to do with whether you enter or exit a trade, or stay out of the market, and such decisions should be based solely on what your analysis and the numbers tell you. is the ideal place to learn Forex trading and provides information on a wide range of topics including currency exchange rates and the benefits of testing the water through mini Forex trading


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