Important points I have picked up along they way whilst learning to trade. Is all this forex stuff for real, can you really make fortunes trading forex? If so why do the brokers just not close the accounts of sucessful traders, why would they keep paying out in some cases hundreds of thousands of pounds a week to home traders. These were all questions I asked myself when I started. When I finally found some real traders kind enough to share their experiences I got my answers.
Yes it is real, yes you can make an absolute fortune, and finally most reputable brokers love sucessful traders because they will copy their trades but with massively larger trade sizes, amazing.
Trading the markets is like a warzone between all the big players. There are four distinct levels. The institutions, the commercials, the retailers, and then all the little home traders. The only ones that affect the markets are the institutions and the commercials, these are the market makers and they spend all day long forcing each other into traps in order to move the prices and make money from these price movements.
The Institutions are the big boys, the US Federal reserve with the USD, The European EURO, the Japanese Yen JPY and the good old British pound GBP. These guys just play around with each other taking turns to be top dog, short of a war take almost anything you hear about what one currency is doing against another with a pinch of salt, look at the daily and weekly timeframes to get a true indication of which way any particular currency will go.
The commercials are the hedge funds and the banks, although with all the new banking regulations taking place as a result of the recent credit crunch they may well have their wings clipped. These guys can move the market but not to the extent of the institutions. Take for instance George Soros, if he says he is dumping USD and buying gold, this will cause short term problems with price action.
The retailers are the brokers and medium sized investors, these guy may play with millions but they have little effect on the markets.
Then the home traders. We are just there to have our money taken from us, lambs to the slaughter. YOU HAVE BEEN WARNED. The Institutions are constantly moving the market to capture the unwary.
A brilliant example just this week, GOLD, "the safe haven" for investors cash, pick up any magazine or newspaper last week and the news was gold was going to rocket through $1000
Just four weeks ago it was $800 two weeks ago it had risen to $900 fueling all those news reports and capturing all those lambs to the slaughter. It hit $1007 and guess what? It's now $940 and falling.
Why is it falling? It's falling because for every buyer there has to be a seller, the instituions got the price to where they wanted and then sold it off, this will scare all those recent buyers into selling there stocks, AT A LOSS!!, they sell trying to preserve their capital, some will have made a small profit, those who bought at the peak are in trouble. These little guys have no idea whats going on, they just piled in because of the hype. How far will gold prices fall before the big boys start buying? Who knows, I can make a calculated guess using all the technical tools and historical data but in honesty the big boys will probably trick loads more people into selling, then maybe trick loads more into buying only to crash the price again before buying back nice and cheap. My guess is Gold back to around $900 possibly $890, 890 because the 900 is the huge mental level that everyone will be expecting it to rally, watch it bounce up from 900 bring in a load of new buyers then crash down to 890 scaring the new money out by stealing all their hard earned cash only to turn around and fly back up past $1000.
Any trader worth his salt would be buying gold in small lots as it falls just in case the big boys fool us all and buy it back sooner than we expected. It is a very clever man indeed who can spot the lows and highs with precision. This is why we use moving averages, fibonacci levels, support and resistance, elliott wave theories, trendlines, chart patterns and momentum indicators even japanese candlestick patterns. They all work, DO NOT believe anyone who tells you to only trade one instrument. Learn as much as you can about them all and use the ones that work best for you.
Be very carefull and do your homework before trading with real money. They are out to steal it from you, IT IS A WAR!!
1. Never use real money trading until you can treble the value of a demo acount using STRICT money management rules, trade the demo accont as if it were real money. I found the best way not to keep restarting a demo account was to share you results with a friend, preferably a fellow trader, this way you are accountable and will hopefully treat your demo more seriously. Anyone can double or treble a demo account. This is why some traders will advocate using real money but with micro accounts, I don't agree, trading 1p a pip gives you a false sense of risk and you tend to let trades run longer, not a true indication of trading with larger lot sizes. A trade going agaist you for 100 pips at a penny a pip feels nothing like the same trade at £1 a pip. No different that trading a slack demo account. Paper trading or trading a demo account following strict money management rules is the best and cheapest way to learn, trust me. Never risk your hard earned cash.
A demo account will allow you to develop your own set of trading rules and money management, DO NOT fool yourself by breaking your rules just to grow a demo account, NEVER close a demo account, if it blows up so be it, start again and stick to STRICT money management. You are not trading to boost your ego or have fun, you are trading to make money. A demo account is not a toy, it is a tool to help you learn how to become a professional forex curreny trader.
2. Before entering a trade always work out where your stop loss will be so that you know exactly how much you will lose should your trade go against you.
3. Never ever trade more than 1 or 2% risk of capital on any single short term trade, if you have £2000 in your account and you are prepared to risk 2% that means you cannot enter a trade that will lose you more than £40, so at £1 a pip your stop loss is 40 pips away from entry (don't forget to include your spread) .
Some currency pairs are more volatile, they move faster than others, you may need a larger stop, simple if the stop is 80 pips just half your lot size from £1 to 50p. Always Always no your risk before entering a trade.
The less risk you have the more controlled and relaxed your trading will be.
4. If at any point you feel stressed in a trade then you are probably trading more than 2% risk, remeber also that if you have a run of bad trades consider reducing your risk to 1% until your confidence returns.
5. Learning to trade is a skill, no different than any other trade, carpenters, bricklayers, plasterers, accountants, dentists, lawyers all take years to learn their chosen professions. Trading is no different, give yourself time, learn everything you can about trading, learn how the markets work, learn about price action and chart paterns. Give yourself at least three years, you may only take six months or less, but if not do not quit to soon. My motto is if other folks can do it then so can I. No matter how long it takes.
6. Martial arts experts practice and practice until they can predict where their opponents next punch is coming from before they have even moved. Your trading needs to be like that. Practice Practice Practice.
7. Only trade when there is momentum, I find the best time to trade is when the markets open, currently the London open is my favourite. You also have the New York, and Asian open all are good. I just trade 2 - 4 hours a day the London session 8.00 and the New york at 14.00 both GMT.
Do not overtrade, if you have to trade outside of the busy times just trade on demo until you become very good. Do not make the same mistake I did, making good pips when the markets open only to give them all back throughout the rest of the day. There are more than enough pips to be made on those two opens, trade what suits you and take the rest of the day off.
8. Do not become a pip whore, a consistent 10 pips a day with compounding will make you rich in no time, google forex compounding and you will find plenty of free spread sheets to work out how to turn £1,000 into £1,000,000 in less than a year. Never risking more than 2% of your capital.
9. To maximise profits and ensure consistent and relatively stress free growth of your trading account always take partial profit at sensible targets throughout your trades and move your stoploss to break even as soon as you can. I always like to lock in some profit at 25 pips so, for example if I place a trade for £10 a pip I will close, half my trade at 25 pips locking in £125 at that point, later on I would close another £3 at my next profit target e.g at another 25 pips so banking a further £150. Then for the last £2 I would move my stoploss to break even and let it run. If I closed the last part at 100 pips profit then I could add £200 to my total, making £475 for that trade.
10. Always Always lock in profits as soon as you feel comfortable, do not make the mistakes I and most novice traders make when starting out, do not let a winning trade turn into a loser. Far to many beginners get burned by bad money management, they let the losers run against them too far and close the winners far too early. Always close a trade at your pre determined stop loss, take the loss and move to the next trade.
You will always get losers no-one is perfect but at least this way you will limit your losses and protect your capital.
11. TRADE WITH THE TREND, ALWAYS BUY AT SUPPORT AND SELL AT RESISTANCE!!
12. Learn to trade with the trend, If possible try to stick to trading the higher timeframes, I suggest the 60 minute upwards. I spent a year or so battling with the 1 minute, 5, 15, and 30 minute timeframes. Any trends you may find in these lower time frames are just retracements from movements in the htf.
Retracements are notoriously difficult to trade, I was taught not to trade retracements, but if I did make sure I shorten my targets and get out of the trade quickly, well guess what? It was stressfull and to be honest it occurred to me that if I was trading against the trend and I got it wrong there was no chance of rescuing my trade. At least if I get in a little early when trading with the higher timeframes trend unless something really drastic has happend I can still ride the trade out knowing it will turn back in my direction. Remember I am only risking 1% of my capital so any mistakes I make are managable and as stress free as I can make them.
The swings in the trends are fractal and as such the internal highs and lows of a trend in one swing on the 60 minute tf can be scrutinised on the 15 minute tf. Likewise a swing on the 4hr tf can be viewed internally by looking at the 60 minute charts.
By trading the 60 minute tfs upwards you are not only giving yourself much more time to analyse and make sure everything is correct but you are also giving yorself a far better chance that you are trading with the long term trend.
So if you are trading the 60 timeframe, make sure you are trading with the 4 hour trend, even better if it is also in the direction of the daily trend.
You may now be thinking that there won't be many opportunities for setups on the 60 minute charts, well I am finding more than enough to keep me busy, I would say at least two or three a day using seven or eight charts. These can easily be worth 100 to 300 pips a day in total.
The 60 minute charts are also brilliant because you can watch many more curreny pairs and this will really help you understand the correlation of the currency pairs. The correlation being the general money flow, one currency is strong whilst another is weak.
13. CORRELATION. This is probably the hardest thing in trading I had to get my head around, far to difficult to explain here so I will do a dedicated section on this website at a later date.
Correlation of currency pairs indicies and commodities is all very much intertwined it is also very changeable so is something you will need to learn yourself by studying your charts for hours and hours probably for years to come. However it will transform your profitability immensly.
In a nutshell when Oil was at $150 a barrel it was the most volatile pair and it drove the market , have a look at gold at the same period, normally gold would dictate the direction oil would move in and they would move opposite, gold up oil down. Back in July 2008 if oil moved up gold would follow. The moral of this is if you know what way oil is going and you see a potential setup on gold, would you consider trading gold the opposite way to oil? NO
As of today 26 feb 2009 the whole world is in financial turmoil. The driving pair today and for the very near future is USD/JPY, the yen has been very strong for quite a while now and is looking seriously overbought. It looks like the institutions have had enough and are falling out of love with it, the Japanese economy is looking even worse than the western world. |
