Posted by admin on December 12, 2011
forex-trading
Do you know what constitutes a quality trading method? Or how to figure out which trading method is worth purchasing? In this article, we will discuss the majority of strategies and work out effective approaches to asses a trading method.
If you deeply study the so called forex trading methods and programs available to buy, you will find many disadvantages in it. These include the following:
Most of the forex trading methods are incomplete. Most of the tutorials spend numerous hours in theory, but as far as practical knowledge is concerned, it hardly spends any time in step-by-step strategy that may help in trading.
These products do not include risk management. The most common mistake that most of the traders make is not managing risk to their trades. If the program or the event you are looking at would not provide risk management consistent with the system, you might probably walk away from it.
A lot of these products aim on elementary analysis only. These approaches in most cases happen to be incredibly inefficient and subjective. They require deep understanding of more complex economic and fiscal matters. If you are not able to grasp them fully, your business won’t be successful enough.
They will need you to “day trade”. Most of the systems will engage you in front of the computer almost throughout the day in order to be able to react.
- So, what constitutes a “good” technique? A good trading system will work in the following manner:
The method has to be complete and should teach the start-up circumstances, entry procedures, preliminary stop rules as well as the exit techniques rules theoretically as well as practically.
forex
The method has to teach and incorporate particular instructions for risk management and money management in compliance with its methods.
The method has to utilize technical analysis, however it cannot be entirely mechanical or programmed procedure.
The technique needs to be functional in regards to time spent putting it on.
These guidelines has helped tremendously in weeding out the “pretenders” between trading methods and highlighting exclusively on the contenders. Methods which in turn offer complete description of the right way to apply, protect and trade. You should utilize these strategies only within your currency trading.
Posted by admin on July 29, 2011
forex-trading
Forex trade means exchange of money. The currency is always priced in pairs. When you are trading, you are buying one currency while you are selling another one simultaneously. Once you make the commitment to trade, you have to complete the deal. If you decide to exit the trade in the middle, you will have to either buy or sell the opposite position. This means that you will have to sell Euros and buy US dollars in return.
Spreads are forex traders’ best friends. It does not affect the profitability. Brokers usually do very good business when they have the tightest spreads. It is very complicated to understand the spread in forex spot market. The spread is the difference between the bid and the ask price. The quote will be given to you in pips. The “bid” is the price that you can sell the currency at. The “ask” is the price you can buy currency at. A pip is the smallest unit by which a cross price quote changes. For example; if the quote you receive between EUR/USD is 1.2222/4, then the spread equals 2 pips. If the quote is 1.22225/40, then the spread is going to equal 1.5 pips. Spreads are important because the affect the ability to make a return on your investment.
Spreads are the commission base for all brokers. Most of the brokers make their money with the help of best forex spreads. Wider spreads result in large broker commissions. The wider the spread is, it results higher ask price and lower bid price. The consequences of this formula is that a trader will end up paying more when you buy, and less when you sell. As a result, it will lower the profit potential. A broker that has a tighter spread will always get the maximum priority in this business.
Just because a broker has a tight spread does not automatically mean that you will turn a profit. You also need to have a proven trading strategy and proper execution. If your execution is poor, it will be tough to determine that the broker you are using has a wide or tight spread. A tight spread that is executed properly will produce the profit as per the expectations.
In Forex trading, your main priority is to buy low and sell high. Therefore, you don’t want to limit your dealings with a broker that has a wider spread, because it means lower profit earning abilities. A half-pip lower spreads does not sound like much. However, it can easily mean the difference between making a profit and losing your shirt. A good example is when your monitor shows a tight spread, but your trade comes in a few pips higher.
Forex trading does not follow the conventional trading floor. On the inter bank market, the larger the ticket size, the larger is the spread. This is not automatically the same for Forex trading.
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Filed Under: Forex
Posted by admin on September 16, 2010
forex
Forex is a risky business, and one of the major preoccupations of forex traders is the reduction of uncertainty through every possible means. In the case of live trading, the tools and options that are available for this purpose are limited. In one way or the other, any conjecture about the future must involve a degree of risk, and with all the unknowns and variables that go into the formulation of a strategy, the extent to which risk can be reduced in real trading is not very large. This fact has made many traders willing to consider back testing on historical data as an alternative to testing in live trading. The presumption is that the market action repeats itself, that a method that was successful consistently over a period stretching back decades into the past, in some cases, is likely to be successful in the future as well. But how true is this presumption? We will take a look at this subject in this article.
1. Forex price action is chaotic
Let’s first recall that forex price action is a chaotic process. Other chaotic processes include the Brownian motion of molecules, weather events, and earthquakes. The common property of all these events is that their response to different initial conditions is vastly divergent. A small difference in the input, a seemingly insignificant alteration of the data fed to these systems results in a vastly different outcome. What this means from our point of view as forex traders is that each days dynamics, and rules governing the price movements is difference from the others, and as such, success at one point in the past implies nothing whatsoever about success in the future.
2. Back testing a strategy ignores crucial broker-specific factors.
There are other factors that make back testing an unrealistic tool. Broker-specific issues are some of them. What would happen if the software crashes? Would back testing reflect those cases where the broker misquotes a price, or refuses to execute a trade? What about those situations where the broker experiences very brief but severe liquidity problems, which widen the spreads rapidly while triggering stops? Such short-term, temporary issues are commonplace, but are not always discounted in the back testing process since they are not observed by all traders. (You may trade with firm A, while back testing your strategy with the software of firm B, which would lead to misleading results.)
3. Back testing is a marketing tool
All this being the case, why is back testing so popular? Since back testing makes many promises and claims possible for strategy developers, and peddlers of automated systems, it infuses an air of credibility and reliability to a trading method being advertised. Thus, it is effective as a marketing tool, and in order to promote their own products, the sellers of online software choose to promote back testing as well, as a certification mechanism for a valid and profitable strategy.
4. Back testing optimization is dangerous and futile
One of the worst approaches that can be taken with back testing involves the notorious back testing optimization method where the strategy is tweaked in such a way that it generates optimal results when it is applied to past input. Yet we have already noted that past patterns are highly unlikely to be repeated in the future. They were the result of particular combination of factors that is extremely unlikely to be repeated for the foreseeable future. If this is the case, back testing optimization ensures that we’ll blow up our account sooner or later, especially if the results of back testing do indeed work to inspire some false confidence in our trading decisions.
5. Back testing is only useful for educational, and entertainment purposes
What is the best use of back testing, then? Back testing can be excellent tool for the forex novice who doesn’t know much about indicators and patterns, and is even more ignorant of how a strategy can be constructed. In that case, back testing can be used to create, and evaluate strategies not with respect to future performance, but to show whether the creator is fully in command of the tools that he employs, whether he understands how they were created, and what purpose they serve.
Perhaps the most popular back testing platform is the MetaTrader software popular with both online forex brokers,and trader. The merits of this platform are in fact numerous, but its back testing capabilities are not one of them. While making use of the platform, we advise that you focus on its analytical capabilities while minimizing the historical aspect of testing. Trading is risk taking; there’s no way around this basic fact.
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Filed Under: Forex
Posted by admin on January 1, 2009
If you are looking to make some money with Forex trading, you need to devote some time and do a lot of studies on this subject. People who go through this prospect of market exchange can do a lucrative business and know additive investment strategies.
Forex trading means the purchase and sale of foreign currencies. Investors keep a close eye on the rates of the currencies when they are moving up and down according to their needs. For example, if you are looking to make a good buy will pin point towards that currency that is currently having a lower value in the Forex market, but is anticipated that the rates will definitely go up sometime in the near future. Just like stocks, you buy the currencies at lower rates and sell it at higher rates to make profits.
You need to apply a lot of different approaches when you are making money with Forex trading. Some of the most common ways to start trading foreign currency include:
- Going through hands on brokerage firms – just like stock brokers, Forex has its own skilled and trained traders. When an investor signs on with a huge investment, he will usually invest his funds on the broker’s best judgments. Investor can still have the hold on his funds and when to pull out on the purchase.
- Day trading – The Forex market is quite popular among the small dollar day traders. Investors will usually go to the brokerage sites to place their orders and request for sales. The individual client will call all the shots even though there is a broker to handle the deals. Day traders often go to great pains to learn market indicators to watch out for and to study up on trends associated with certain currencies.
Making money with Forex trading can be a quite tricky proposition. When you see the currency value moving up and down virtually on a daily basis, this market is still fast-paced, active and interesting for investors to get involved in.
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Filed Under: Forex
