What makes a great forex trader great? Here are the top 10 habits that all great forex traders have in common.
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Top 10 Habits of Successful Forex Traders
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Category Archives: Forex Trading Tips
Forex Trading vs Stock Trading
One of my first question when I learned about trading or investing in general is that, “Which is better? Forex or Stocks?”. Though many people will argue that one thing is better than the other. I would like to give my opinion on this case. They are both great vehicles for making money and have a lot of potential in making you rich and we will tackle them in this post at forex philippines.
Forex market is The Largest Market in the world. The market is open almost 24hrs a day. When one market closes, other markets open, making it possible to have a continuous 24hrs operation. There are a lot of benefits trading in the forex market and one of it is being liquid. You are trading money with other money (currency) how liquid can you get? It is not like real estate where you can declare you are a millionaire but still you can’t even use that million unless you sold your house. Being liquid makes it possible for you to invest and reinvest money quickly.
In Forex Trading, There is little to no intervention. Not like stocks, the forex market is too huge of a market and encompasses all of the nation’s condition and reflected it in their currency. Its not just 1 company we are talking about here. Its the sum of all businesses that a country have and their economic condition. Politics and current events play an important role in which non of them you can control.
Little investment required. In trading forex, you don’t need to shed out a lot of money to start. Me and my friend started out $100, testing the waters and we continue to increase our funds as our experience increase. And with most brokers offering leverage, your $100 can buy 40 times more.
Investing in the Stock Market for me is a long term goal as forex is a short to mid term. I think the volatility of the forex market makes it difficult for an average investor to keep the money for the long term as you will be stopped most of the time, if not margin called. In the stock market you can take advantage of dividends offered by companies, pay checks for you for investing with them. You can be the top head of that company just by buying majority of the shares. These are all wonderful perks of stocks. But what keeps me from investing money here for now is the fact that it can be manipulated by people inside the company. Just as the popular movie “Wall Street”.
We can not really say what is better or best in investing. It comes down to preference and your view of each market. One thing is for sure, if you have money, invest in both as they are great vehicles to earn money.
Polishing My Trading Style
Been trading demo and live money for weeks and trying to come up with my own trading style. Been focusing on just 1 currency pair and with one time frame (15 minutes).
For the first few days that been trading, my funds are diminishing everyday, trying to bang my head on the wall why do I lose trade? I came up of the idea to make everything simple. Watch out for just 1 setup and wait.
Knowing that setup and pattern will get you acquainted with it. Making you recognize the pattern anywhere on the chart and recognize it when it is forming. You get to know one setup and pattern really well, try to learn another pattern until you build up your trading pattern vocabulary.
Indicators
I did a lot of indicators in the beginning. But the I didn’t like it that much. The reason for that is because all indicators are lagging. Meaning, they only indicate what already happened and try to assess what will. But still, things already happened, the ideal scenario would be – you to know things will happen before they happen, not after. All indicators lag behind.
That leaves me with nothing more than a blank slate of just candlestick charts. How can trade with just candlesticks? The answer is, price action. I’ve been amazed by how price action can well determine what’s happening in the market. It even tells you what the news tells you. Price action is a technical analysis that shows fundamentals very clearly.
Did I Profit?
I’m proud to say, after lots of weeks practice and money lost. I am beginning to feel that I learned and I am improving. I traded with small volumes last Friday night before market closes and it got me 40+ profit twice. And this time, I know it is not just by mere luck.
I’m still way behind my trading goal. But I know I’m seeing the light. I know I’m on the right track. And I won’t stop until I reach that goal. To anyone who reads this blog for forex trading tips. I think that the most important thing to know first when trading is to never give up. Developing your own style of trading by just trading by yourself, without the help of other people’s advice. We develop our own style when put into lots of pressure, emotions, greed and diminishing red font on your capital funds.
It is pressure that turns a lump of coal into diamonds.
P.S. I have a friend trading with me next week and we decided to record our trade in video. Stay tuned. 🙂
Jun 29 2011 – Trading with Reversal Pinbar
As you all know. The way I trade currency is using technical analysis. I know that there are many people out there that has been using fundamental analysis to decide on their trade. And this is what works for me and allow me to share some bit of information about technical analysis that might help you improve your trading.
Please see the image below.
I would like to introduce you to a reversal pinbar called engulfing pattern. It is a bar that “Engulfs” the previous bar indicating the end of the trend.
As you can see, I took the trade once I saw the engulfing bar pattern and placed my stop loss above the previous high.
Managing Risks and Currency Hedging
I realized that you can really minimize the risk in trading. To do that, you want to open your position on currency pairs that are correlated. If I want to open a position on EURUSD, you may realize after a while that you might be wrong, an attitude that is always good to have.
Having said that, you may want to look at the correlation table below.
As of September 2011
If you want to manage risk for the EURUSD trade. You may want to open a position on AUDUSD and other correlated pairs.
Hedging and Managing Risk
Lets say you go SHORT EURUSD, to hedge that risk you need to go:
- LONG AUDUSD
- LONG EURGBP
- LONG GBPUSD
- SHORT USDCAD
- SHORT USDJPY
- SHORT GOLD
if LONG EURUSD
- SHORT AUDUSD
- SHORT EURGBP
- SHORT GBPUSD
- LONG USDCAD
- LONG USDJPY
- LONG GOLD
Doing this strategy may give you lesser risk because once EURUSD may go downtrend other currency may go uptrend thus minimizing the risk. But it also minimizes the reward. If you want to be a daredevil and amped up your profits, you may use the one below.
Doubling the Risk & Reward
Your position SHORT EURUSD, to double the risk you need to go:
- SHORT AUDUSD
- SHORT EURGBP
- SHORT GBPUSD
- LONG USDCAD
- LONG USDJPY
- LONG GOLD
if LONG EURUSD
- LONG AUDUSD
- LONG EURGBP
- LONG GBPUSD
- SHORT USDCAD
- SHORT USDJPY
- SHORT GOLD
Knowing what currency relates to one another gives you the advantage to play your cards well in case you are not sure.
Forex Backtesting
Forex backtesting is the process of going through charts from previous years, weeks or days to confirm the effectivity of a system. Simply put, you look at past charts to know if your system worked well as you predicted or failed. Every new and experienced forex trader do backtesting because it allows the trader to gain knowledge and confidence on his system and make necessary tweaks and rule to find the system that works for them.
Forex Backtesting Software
Most forex companies will let you view at past charts or even download them, where you can mark (using pencil and paper) and trade by looking at one bar at a time (simulating a real trade session).
There are some software that will do this for you. One is forex tester. Well, I think, its the only back testing software out there. Either the forex brokerage company has a feature or not, you can either trade manually or demo trading. Demo trading can be long and tiresome. Using a back testing software, you can instantly test your strategy because you can control the time when each bar will appear.
Conclusion: Whatever method you take, always remember to test your strategy before trading live. Either by backtesting, paper trading or demo trading. You must gain full confidence on your trading system.
How to Get Out Of Losing Trades
As far as forex trading goes, every trading system has their own rules for entry and exit, their money management and risk and rewards. But system rules, entry and money management are the easiest part of the system. The hardest part of the system is the “exit” because its where you’ll make or lose money.
What’s even worse is if the position is a losing proposition. Clicking that exit button might seem like a Herculean task of discipline and strength. Most people breakdown at this point and fall into the abyss of self-denial, thinking that the market will eventually comes back and recuperate their losses. But the market never did come back and his trading account, vanished.
I’m here to tell you what I think about losing trades, how to ease the pain it brings, how to get out gracefully and how avoid it in the first place.
Avoid Losing Trades by Concentrating more on the Exit
When you see a trade, focus on the exit rather than the entry. A newbie forex trader will try to “imagine” patterns when they see an entry signal. And sometimes, deliberately try to convince themselves that the pattern is indeed 100% accurate. They become obsessed at proving themselves that they are right. You should do the opposite. You should always try to prove yourself wrong and always look for the exit rather than the entry.
As I quote Sun Tzu’s Art of War:
“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win”.
Know beforehand that your exit will be profitable and you have won that trade even before you make it. As you make this approach, you’ll notice that you’ll have fewer and fewer trades. But the quality of those trades will certainly increase.
Immediately Close a Losing Trade and Move On
This is probably the hardest action to take for a losing trade. Accepting the fact that you’re wrong is a sign that you have matured as a trader. While newbies will try to hold on to the trade wishing that the market would bounce back. There are probably another school of thought when it comes to this strategy. The market does not go in a straight line and they wait for it to bounce back even for a little. That is perhaps true. But I would rather end it now than to hope that the market will come back for me. What if I’m wrong on that part as well? Being wrong twice in a single trade could be the worst feeling and it could harm your future trades.
Never Risk Too Much Money
All in all, it all goes down to the amount of money in a trade. Demo trading is fun because the money used is not real. And so, every losing trade in a demo account is nothing to you. But if real money is at stake, “shit hits the fan” too much too often. Risk only the amount of money you are comfortable with. You need to have a good money management strategy on top of your trading system. This is different for every people. That’s why we have a term risk appetite. Some people likes to risk high and some people don’t. I don’t personally like risking alot of money in a single trade. Well, I used to risk a lot, but I’ve changed.
Personally, the amount of money I risk in a single trade is 2%. Max. I don’t go over that. I have found that I’m very much comfortable losing that amount of money and so I don’t panic when I have losing trade. I just kill that losing trade and move on.
Whatever you do, losing trade is not a good feeling to have. But remember that forex trading is a business and should be treated as such.
Forex Trading Rule #1: Never Lose Money
The most accepted adage, “Higher Risk is equal Higher Profit”, could be true for forex trading. But does it have to be that way?
I used to bet big on position only to find myself in a hole when the position becomes a lost. Ignoring the fact that if you want to be successful in forex trading, I think, the wisdom of the old rich people are still the best advice. Warren Buffett said “Rule #1 in making money is to never lose money. Rule #2 is never forget rule #1”.
This rule have been integrated into my trading system. Being contented in making small but sure profits instead of betting the house for a once in a lifetime lottery trade. Small but sure, consistent profits is much better than luxurious profits with high risk.
Forex Trading Small First Before You Go Big
People are greedy. That’s a fact. But its the emotion that keeps us wanting more and always wanting to have the things we want. Makes us think of ways on how to get it. Don’t fear greed. Make use of it. Master it.
Most newbie traders, me and my friend, talked about the profits in trading. One of us will argue that to have great profits you need to have large amounts of pips in a winning trade. Ok. Fair enough. More pips = more profits.
Think about this, you have $1M in your account as capital. And your target profit in terms of pips is in the 200+ pip range. Sounds like a lot money to be made when you get that 200+ pip. But think of the risk you will get and also the time before you get to profit. In forex trading, there are fluctuations, can you stay calm when your account displays -100pip because of its initial retracement? Can you still decide if the trend is against you or its just a retracement? Remember, earning that kind of pip will require you to hold the trade from 1 hr to 1 day. Can you handle the pressure?
I say, pip size doesn’t matter. How much you risk in each trade matters. Playing with small profit pips will reduce risk. And also, having a profit target that’s small will minimize risk. Smaller pips means, shorter time inside a trade which means lesser risk, less pressure from greed or fear.
Pip size doesn’t matter, volume does. Increase your volume once you got the thing going. Increase more to profit more, while still maintaining the same pip per trade profit. And always remember, don’t overtrade. Take a time out. Every businessman needs his vacation once in a while.
Good luck!
What Are Your Goals in Forex?
180+ pips on AUD/USD
When people asks me what I do for a living and tell them I have a business called forex trading, people always jump out of joy and ask me to teach them how to do it. It seems that is rare for someone to encounter such a breed of people that you won’t be able to hide your joy and ask questions. It is a pleasure for me to teach. But it can quickly becomes a frustration when people don’t have the willingness to learn. Only the willingness to ask. There are a lot of forex tutorials, resources and beginner tools on the subject that its quite frustrating now to explain fibonacci, limit orders, SMA, margin and leverage to an average person. We all have those basic stuff online and for free. If you come across a forex trader in your life, do not scare him away by asking newbie questions. Educate yourself first so you can ask interesting question that would express your willingness to learn. You may build a good relationship with that person and might improve your trading.
In a business where your character will be tested, I think everyone should be willing to learn by themselves because after all, it is your money. First ask the question, what is your goal for trading forex. Is it to become a millionaire overnight? Is it to retire young? Or is it just a vehicle for you for wealth building?
Whatever your answer to this question ultimately lead to what kind of strategy you will utilize. Every person is different. And every person have a kind of threshold where he can take a loss and not quit. Everybody is different. So learn about yourself. And create your own strategy. Master the fundamentals and you’ll be able to learn faster. And most importantly, be patient and have self discipline.
I do have my personal goal in forex when I started out last year. I haven’t achieve this goal yet. But I’m seeing positive results now more than ever. And that’s because I never stopped learning.
Whatever your goals are in forex, I wish you good luck.