Develop Trading Discipline
You need to develop trading discipline. If you come to a point in your market analysis in a trading session when you have no confidence on the accurate direction of the market forecast, choose not to trade. Always remember, a lost opportunity is better than lost capital.
You should wait for the market conditions to become clearer before you enter a trade. You should increase the probability of success by trading when the trade setups are strong and risk to reward ratio is not more than 1:2. This is far more important in forex than in stock markets. The forex markets move a lot as compared to the stock markets.
You need to learn that high leverage will give you the opportunity to make a lot more money much quicker. But in case you go wrong, currency markets are ruthless. You can get your account wiped out. You dont see an opportunity clearly. Try to sit on the sidelines. You dont have to trade every time. Wait for the market conditions to become clearer. You should learn to be a patient trader. Wait for the market to come to you.
You need to learn that leverage is a wonderful money making weapon. It is the essential key to making money in the currency markets as no other markets allow high leverage that this market allows. A leverage of 100:1 means that with a $1000 deposit, you can trade $100,000. This huge amount of leverage will give you the opportunity to make the kind of returns on your investment that you want.
But using high leverage also has the potential of making you lose some or all of your capital if you trade foolishly. Take the example of credit cards. The bank lets you borrow huge sums of money using your credit card on the promise that you will pay it back.
But if you abuse your credit card, it can lead you into heavy debt or even bankruptcy. Just like managing your credit card, you need to manage leverage in forex trading. Just because you have $10,000, does not mean that you should trade 10 lots. Using all your capital would be foolish.
A very conservative yet very effective method would be to never leverage more than 20% of your account. Thus, you should only trade two lots with a $10,000 capital. Using good money management and discipline, you grow your account successfully in a short period of time.
Dont forget the power of compounding. The compounding factor applied to your capital can make it grow fast. Many people want to get rich quick. They take unnecessary risks while trading thinking that a few big wins will make them rich. They dont focus on proper trading principles. You need to develop the discipline in yourself to follow simple money management rules.
Suppose you open a mini account. Start by trading one position of a tenth of a lot. You will not make much money in the beginning. The position size is only one tenth of a normal lot. Be patient! The percentage of returns will compound over time. You will trade a much larger sum of money with the passage of time.
You should make realistic goals that can be achieved over time. Always trade with the money that you can afford to lose! Trading with money that you cannot afford to lose is foolish. Dont borrow money to trade. Dont use money that you would use to pay monthly utility bills. Dont use your life savings. You are not a gambler.
Understanding Forex Accounts
Good money management is the essential key that many currency traders miss. Many traders ignore adapting good money management rules at their own peril. As a consequence, they get their account blown in a few weeks of trading. You need to become a disciplined trader. Trading discipline means developing a trading system based on money management rules that limit your risk and avoid making trading decisions based on emotions. In the end, every trader has to develop his/her own insights and systems.
One of the worst blunders that trades can make is to try to trade without sufficient capital. This does not mean that you should have a lot of money before you start trading; it only means that you need to have enough capital in your account to take advantage of the movements in the markets. Low capital increases your chances of getting blown out.
A trader with limited capital is always a worried traders always looking to minimize losses beyond the point of realistic trading. The minimum amount required to open a standard account with most forex brokers is $2000. You can start with $2000 but it is recommended by most of the professional traders that you should start with $5000-$10,000 to get good results.
A standard account or a regular account (often also called 100k account), lets you trade a $100,000 standard lot with a $1000 deposit. This $1000 is kept as the margin by the broker. This is a 1% margin. Your account should have more than $1000 if you want to trade a $100k lot.
When you open an account with the broker, you must determine what the default margin is. You can change the account margin to whatever you feel comfortable with. If you start with a 2% margin, then it will cost you $2000 to trade one standard lot.
You can get a leverage of up to 200% in most of the standard accounts. Using 200% leverage means trading $200,000 with a $1000 deposit. Too much leverage is dangerous. Dont use more than 4% leverage while trading in the beginning.
Its not that leverage is bad. It is a double edged sword that cuts both ways. It increases your profit but at the same time wipes you out in case of a slight miscalculation on your part. Its just that you need to understand and learn how to use it. You can only do so with practice. With practice and more experience, you can increase the level of leverage in your trading.
The mini account was developed to accommodate investors who were looking for diversification of their stocks portfolios. You can open a mini account with a deposit of $300. This small dollar requirement allows many investors to participate in the forex markets who were previously unable to do so.
One lot on a mini account means $10,000. On a mini account, you have a different lot size as compared to the standard account. You only need $50 to control a mini lot of $10,000. This is a leverage of 200%. Pip size on a mini account is also small as compared to the standard account. A pip size on the mini account is equal to $1 instead of $10 as on a standard lot.
If you lose 100 pips on a mini account, it means losing only $100 as compared to losing $1000 on a standard lot. You can say a mini account reduces your risk by 10%. But it also reduces the amount of profit that you can make. Start with at least $500 on a mini account. A mini account is a great way for beginners to practice forex trading. Once you develop the feel of how the currency markets work, you will have to open a standard account. It is on the standard account that you can make good money.
Learn To Use Moving Averages & Bollinger Bands?
Moving averages are a very popular tool among the traders because they are a lagging indicator of the price action. Short and long term trends are easier to identify using moving averages.
MAs are calculated on the traders specifications. They can be formatted to different style of trading and time frames. For example, in case you want to use a 90 time frame moving average, the prices of the last 90 times frames is added together and divided by 90.
A moving average can be calculated based on the opening, high, low or closing price within a time frame. Since the closing price is the most important price, most traders prefer to use the closing price. There are three types of moving averages. First one is the Simple Moving Average. Second is Weighted Moving Average and the third is the exponential moving average.
The simple MA is simply calculated by dividing the price in each time frame by the number of time frames as the name suggests. A weighted MA places more weight to the current prices as compared to the prices in the last few time frames. In an exponentially smoothed MA, the chart is exponentially smoothed out with less emphasis on the prices in the latter time frames.
Another important technical indicator is the Bollinger Bands. What are Bollinger Bands? These are bands plotted at a standard deviation above and below a moving average. The base of a band is moving average. The bands width is determined by volatility. The standard deviation is a measure of volatility so the bands are self adjusting. They widen during volatile markets and contract during less volatile periods. Bollinger bands bracket almost 90% of the market action.
Bollinger bands have many useful characteristics. Knowing when the prices are high and low, a trader can make rational investment decisions by comparing price action with the action of other indicators. They are curves drawn in and around the price structure. This provides relative definitions of high and low.
Bollinger bands can be applied to mutual funds, forex trading, futures, indices etc. As volatility lessens, sharp price action tends to occur as the bands tighten. A continuation of current trend is strongly expected when the price moves outside the bands.
A move that originates at one band tends to go all the way to the other band. When bottoms and tops made outside the bands are followed by bottoms and tops made inside the bands, reversal of the trend is highly likely.
When the bands are flat and narrow, this indicates that price volatility is lower than in previous time periods. The 10% price action outside the bands is most likely going to approximate areas where prices will return to within the bands.
When the bands begin to flare and widen, this indicates increased volatility and start of a new strong trend. Wide bands are usually taken as an indication of a very strong move.
What Is Maverick Money Makers?
If you are at all interested in making money online then Im sure youve heard of the program called maverick money makers.
Its one of the biggest learn how to make money membership sites about at the moment and there are thousands of members.
If you are thinking about joining maverick money makers then carry on reading this article to find out what I like and dislike about the program before you buy.
Ive been making a living from the internet for a few years now and have become very good at it. Since I came online Ive seen thousands of products come and go. The bad ones dont stick around for long.
Firstly Ill say that there has been some controversy about the maverick money makers program because some people say that they are teaching blackhat methods.
However I’ve looked through all of the content and there is only a very small section that is even remotely blackhat or unethical.
The main thing that really surprises me and sets this program apart from the rest is that there is always new methods being added to the members area so a lot of effort is going into this.
Id recommend choosing one method and making that method work for you before you move onto the next section.
Another thing I really like about maverick money makers is the support is very good. I had a question about one of their methods and had a helpful email back within about half an hour.
The only criticism I have about the program is that there is so much information in there that you may feel overwhelmed.
The greatest thing you can do is to spend some time when you first join looking through all the information and then choose the method you like the best and focus on that method until it’s working for you.
The maverick money makers club is the real deal and has some excellent methods and information. Just make sure you use the information you find there.
Money Management in Currency Trading (Part I)
Before you open an account with a forex broker and start trading live, you should know that the most important thing for you is good money management. Money management means how much of your portfolio, you are willing to risk on a single trade. How many contracts your risk tolerance warrants?
The important thing in trading is to learn how you can improve your investment results by making small changes to your trading strategies. Good money management rules can make the difference between becoming a successful investor in the long run or an unsuccessful one.
Have you ever played poker? If not, watched it being played online or on TV! If you have then you will never see a good poker player play all his/her cards on a single bet. Good poker players know that by risking only a small percentage of their money on a single bet, they can win and lose. But he/she will still play the next hand. If he/she puts everything on the table on a single bet; it will have to be a 100% sure bet. An impossible thing, you can never be 100% sure. Life is full of probabilities. Nothing is for sure.
Forex trading is far more complicated than playing poker. You are dealing with hundreds of unknown variables that affect the markets instead of only 52 cards. To succeed in forex trading, you must understand and implement the money management principles.
Many pitfalls will cross your way while trading. As a trader you should be constantly aware of two emotions; greed and fear. In case you win a trade, you will become greedy and would want to risk more to make one big win. You would want to strike it rich in one or two trades. This will drive you to take more and more risk.
When you lose a trade, you become afraid to risk enough of your money on the next trade. Fear takes over and impairs your decision making, making you lose confidence in your judgment and decision making. Lets see how fear and greed can play havoc with your trading.
Lets suppose you have a run of successful trades. You are feeling overconfident and you are not satisfied by risking only 2% of your account on a single trade. You want to risk more on the trade. The more you have in a trade, the more you will make if you are right. You increase your risk to 5%, you win. You increase it further to 10%, you once again win. You finally decide to put 25% of your equity at risk on a next trade, but misfortune strikes. Your successful run comes to an end. You lose.
Suppose you had a $100,000 trading account and you had foolishly risked 25% or $25,000 on one trade that you desperately wanted to win. Losing $25,000 means you have only $75,000 in your account now after your loss. How much you need to make to get back the original balance of $100,000; you need to make $25,000 again to go back to the original balance. It means you will have to make 25,000/75,000= 33%, so you risked 25% but now you will need to make 33% to get back your original amount.
Many investors once they lose a trade become desperate and try to risk more to recover their original loss. They end up losing more and more and very soon those investors destroy their accounts. Most of them are out of trading forever soon. There are other traders who try to reduce risk even more on making a losing trade; eventually they lose any opportunity for meaningful growth in their accounts.
Use Pivot Points Using Pivot Points What Are Pivot Points? Pivot Point Trading
Pivot points work as a filter in all markets that have established ranges. They should be taken as powerful leading indicators in your technical analysis tool kit. Most of the other indicators used in technical analysis are lagging. Lag means they only inform you about the price action that has already taken place.
Pivot points tell you about the future price action. They are calculated based on a simple mathematical formula that determines the next time periods range based on the previous time periods data. It includes the low, the high and the closing price for that trading session.
If you dont know what is a range, then a range is the high and low of a given time period. Markets are just people buying and selling. The high represent the buyers exuberant bullishness. The low represents the sellers pessimistic bearishness for that particular trading session.
A pivot point is that special line drawn in sand where most traders turn from being bearish to bullish or bullish to bearish. These points are used in currency trading to tell if the market sentiment has shifted from being positive/long to negative/short. If the price is trading above the point, you should take a long position. And if the price is trading below the pivot point, you should take a short position.
Now lets calculate the pivot point for one trading session. Pivot= (Low+High+Close)/3. You can use a 4 hr chart to calculate the pivot point for the next session. Just plug in the values of low, high and close for the 4 hour session to calculate the next pivot point. Thus you can have 2 pivot points for each 8 hour session and 6 pivot points for the 24 hour session.
Take a long position as long as the price stays above the pivot point and trade a short position as long as the price is below the pivot point. The thinking behind the pivot points is simple yet powerful and highly useful. If the buyers are willing to pay more for a currency pair now than they were 4 hours ago, than at least for the time being the markets are bullish. Conversely, if the buyers are not interested in buying for the time being than for the time being the market will stay bearish.
Pivot point work like a filter for you. Accept only buy entry signal if the price is trading above the pivot point. And only accept the sell signal if the price is trading below the pivot point. We have used the example of 4 hour charts. You can also use daily, weekly and monthly charts.
Pivot point will help you determine the entry and exit for each position. They can also be used in conjunction with other technical methods. Pivot point analysis is a robust, time tested and a reliable market analysis tool.
Many new currency traders and even experienced traders ignore learning pivot points considering them complicated. Nothing is far from the truth. They are very easy to use. Learn how to determine the market sentiments in any timeframe you want to trade with pivot points. But always keep this in your mind; these points are only a guide, they should not be taken as the Holy Grail. Pivot points can help you filter out excess information and avoid analysis paralysis from information overload.
Oil and Currency Trading
Wall Street watches oil prices like a hawk. Remember the early part of 2008 when oil prices skyrocketed from near $70 to almost $150 within a few months. This was more than a 100% increase in oil prices. Many hedge funds heavily betted on the increase in oil prices and made a windfall.
It is being studied whether the increase in the oil prices was due to speculation by the hedge funds. When the stock markets crashed in the middle of 2008, most of the hedge funds had to liquidate their investments in crude oil futures to cover the redemption pressure on them. Oil prices collapsed. Oil prices are down now due to low consumer demand because of the global recession. But it is being predicted by the experts that with a recovery in the global economy, the oil demand will rise and the prices will go up again. Oil demand in China and India plays a major role now.
As oil prices go up, consumers are forced to spend more on oil. The more they spend on oil, the less they can spend on other products. The less they spend on other products, the less profit companies make. Declining profits made by these companies mean declining stock prices.
The opposite is also true. The less the oil prices become, the more Wall Street becomes optimistic about the profit potential of companies. This increased optimism leads to increase in stock prices. Two large futures exchanges are used to determine the prices of oil. They are the New York Mercantile Exchange (NYME) and the International Petroleum Exchange (IPE).
Historically, rising oil prices have been associated with falling stock markets. NYME is where most of the crude oil futures are traded. By monitoring the movement of the crude oil futures in NYME, you can develop a feel of the future economic situation of the United States. Since oil is heavily traded in US Dollar, this affects the US Dollar. The net effect is however a bit complicated.
Lets take a look at it more closely to understand the two effects that pull USD with oil. When oil prices increase, the demand for US Dollar also increases. Most of the countries need US Dollar to pay for their oil imports. High demand for US Dollar means that it should appreciate.
But this is not the whole story. Increased oil prices also take its toll on the US economy. The question is which effect is more important for the forex markets.
The effect varies for different currency pairs. Suppose you are watching a currency pair that involves the USD and a currency representing a country that does well during the times of high oil prices. Take Canada that has huge oil reserves after Saudi Arabia. The effect would be depreciation in the value of USD/CAD pair. US imports more oil from Canada than any other country. And if you are watching a currency pair that involves USD and a currency whose economy is harmed by the rising oil prices, the demand for USD will rise.
So some currencies have positive correlation with oil prices and other currencies have negative correlation with rising oil prices. The currency pair CAD/JPY shows the strongest reaction to rising oil prices. Japan imports almost 100% oil.
Watch for CAD/JPY currency pair, when oil prices are going to rise again. CAD is positively correlated with oil prices. JPY is negatively correlated. So CAD/JPY has the strongest reaction to the increase in oil prices. It can be a very good currency pair to trade during times of oil price boom.