Fundamental Or Technical Analysis?

Basically, forex traders always use two different approaches to make decisions in forex trading. The first approach is Technical Analysis, and the other one is Fundamental Analysis. But we added 1 more approach which was not included among two approaches above. We call it Logical Analysis.

What does Fundamental, Technical, and Logical Analysis mean ?

Technical Analysis is the art of forecasting price movements through the study of chart patterns, indicator signals, sentiment readings, volume, open interest, and other mathematical analysis to identify trading opportunities.

Fundamental Analysis focuses on key underlying economic and political factors to determine the direction of a currency's value. Fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumors. There are a number of fundamental indicators traders may follow that reflect how an economy is changing and gleam insight into Forex market prices to come.

Logical Analysis is an approach to exploit the law of eternal balance in the universe (its like the eternal balance of yin and yang). Forex and every matter in this world are affected by the universe. Hence this approach can be implemented in forex as well. Later we will give you a very profitable trading system to gain an enormous profit based on this method.

Fundamental, Technical, and Logical Analysis. Which one is the best ?

Technical traders usually say that it is impossible to trade on the news, because the market moves so fast. In the other hand, fundamentalists say that only the news move the market and indicator is always a follower.

The big question is what actually moves the forex market? It is trader's expectation and speculation that moves the market! Neither the news nor the graphs move the market. The most dramatic price movements, however, occur when unexpected events happen.

There is another important question you should think of: How much money is traded by fundamentalists, and how much money is traded by technical traders?

We will tell you a little secret in forex industry. Do you know that almost all of big banks, hedge funds, and other big financial institutions trade using Fundamental Analysis? And unfotunately those big financial institutions have the biggest amount of money in the world.

So what is the correlation with forex market? It is very rational and predictable : At the time they open trades (using a large amount of money), the market moves accordingly. What do fundamentals do ? If the news report for a country is better than expected, that country's currency usually gets stronger and moves the price, if it's worse, that currency will be weaker and moves the price to the other way.

Do you know why there is only a small amount of fundamental forex trading e-book taught by forex brokers out there ? This probably has something to do with more profitable nature of fundamental analysis. As you know, some brokers dont like if their customers win. If you win they will lose (they trade against you).

What about technical traders ? It seems that most of technical traders and small traders don't have such a lot of money compared to big financial institutions, even altogether.

For complexity, there are lots of different indicators and timeframes used in technical analysis. At the same moment, each of them are giving different signals.

The conclusion is we prefer to use fundamental analysis compared to technical. Then what about logical analysis ? To be honest, logical analysis the best method to trade forex, as it will give you a constant, reliable, and greatest result almost all the time.

Forex Trading Tips

Trading tips suitable for Technical Traders : Only use the most common, widely used Trading Indicators and Never trade during important News Accouncement Time.

Trading tips suitable for Fundamental Traders : Be patient, discipline, use an accurate clock and only trade during important news release.

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How to Achieve Trading Perfection?

Achieving Trading Perfection - Trade quality, not quantity. Take the best of the best. Get the big picture. If you haven’t previously come across such advice, or if you have and are not following it, it is time that you take these words to heart. But how?

Trade selection and adequate planning go hand in hand. This is where most would-be professional traders miss the boat.
Much more money is made as a result of proper planning than from sitting and trading everything that comes along or “looks” good.
It’s difficult to fully understand why people think they have to trade so much. It’s difficult to truly grasp why people think that they have to take as many trades as they do.
Just the opposite is true. There is a correct approach to each and every trade. That is what achieving perfection is all about.
It all starts with proper management: planning, organizing, delegating, directing, and controlling.
These facets of management must be woven together into your trading; they do overlap.
Although planning is the major management function involved in achieving perfection, you can’t possibly plan well unless you are organized to do so.
You must have your tools at hand: your trading software, your data, the proper equipment. All of the rudiments for planning must be in place, which in itself is a part of organizing.
You must be physically fit when you plan: well nourished, properly exercised, well rested and mentally alert - all part of having your life organized, all part of achieving perfection as a trader.
To be a winning trader, you have to be among the best. There can be no middle ground. There are only winners and losers, and to be a winner you have to be a champion. And, just like any champion, you must have discipline, self-control, and a willingness to train, train, train.
There are no runners-up in trading, you either get the gold or you give the gold. Often, while others are busy going to parties or watching sports events, you are busy poring over charts, studying, thinking, planning. When others are listening to music or watching TV, you are busy practicing your trading, practicing trade selection, working hard to become a more astute trader.
Part of achieving perfection involves the diligent study of charts. The data, as presented on your screen and preserved as charts, are, for the most part, all you have for making trading decisions. They are a picture, a visualization of what is taking place in the reality of the forex market. Your job in achieving perfection and becoming an adequate trader is to picture and imagine in your mind what makes prices move and form the way they do. Ask yourself, “How does what I see in front of me relate to the supply and demand for the underlying?” Ask yourself, “Is what I am seeing on the chart even related to supply and demand, or is what I am seeing related to an engineered move by some insider or market mover?”
Supply and demand are not what makes prices move or fail to move most of the time. The sooner you realize that fact, the better off you will be. Markets are engineered, manipulated? You need to know that.
But there’s more to a chart than merely price patterns. Reflected in the chart are the emotional reactions of human beings. Reactions to rumors and news; to national and world events; to government reports - these, too, are on the charts.
You might say that price movement, or the lack thereof, is the net effect of all the perceptions of all the traders who are participating in the market for a particular futures.
There is something else on the charts, something that too few take into account. That something is the manipulations from and by the insiders, the market movers, and by commercials holding large inventories of the underlying you are attempting to trade.
In achieving perfection as a trader, you must train yourself to look for evidence of any and all of these things as you study your charts. It is the cumulative action of all perceptions which causes patterns to form on a price chart.
You must learn to look for the truths in the markets. There are certain truths which are self-evident; they are always true. For instance, take the phenomenon of a breakout. When prices break out, no one can change the fact that they did break out. It is a fact and it is true. The breakout may turn out to be a “false” breakout, but nevertheless it is a breakout. As part of achieving perfection in your trade selection skills, you have to learn to tell which breakouts are most likely true breakouts, and which ones are most likely false. How can you know? By the price patterns on the chart.
And what about trend? Your job in achieving perfection as a trader is to master how to trade a trend. A trend is a trend, is a trend. It is a trend until the end, and part of your job is to know when a market is not trending.
The trend is the trend while it lasts. While a market is trending it is telling the truth. The trend can change, but the truth is the truth. If prices are rising, the trend is up. If prices are falling, the trend is down. The truth can be found in the trend. It is an immutable fact. You are to learn to make my money by trading with the trend. You are to learn what constitutes a trend. You have to learn to spot trends early so that you can make the most out of the market while it is trending. Your job in achieving perfection as a trader is to learn to recognize when a trend will most likely begin, and just as important, to learn to be even more adept at deciphering when a trend is ending.
In achieving perfection, you must learn to recognize “your” trade(s), and to take only “your” trades. Trade the formations and patterns that you can easily recognize and identify.
You must learn to trade using tips and tricks that you are shown and to accumulate and keep a collection of techniques that result in the selection of high probability trades.
How are you to do all this? Practice, practice, PRACTICE. Practice recognition of congestion areas. Practice recognition of high probability breakouts. Practice trend recognition. Practice and more practice. Just like anyone who wants to achieve perfection at anything, there must be total dedication, study, practice and more practice. You are to become a trading virtuoso. You are to practice, yet always realizing that you will never attain true perfection, that there is always room for improvement. There is usually a way to refine: ways that you can do things better, more efficiently, and with greater speed and finesse.

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Technical Analysis by Currency Traders

Technical analysis is a method used by currency traders to predict price movements and future market trends by studying what has occurred in the past using charts. Technical analysis is concerned with what has actually happened in the market, rather than what should happen, and takes into account the price of instruments and the volume of trading, and creates charts from that data as a primary tool. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments simultaneously.

Technical analysis is built on three essential principles :

1. Market action discounts everything! This means that the actual price is a reflection of everything that is known to the market that could affect it. Some of these factors are: fundamentals (inflation, interest rates, etc.), supply and demand, political factors and market sentiment. However, the pure technical analyst is only concerned with price movements, not with the reasons for any changes.
2. Prices move in trends. Technical analysis is used to identify patterns of market behavior that have long been recognized as significant. For many given patterns there is a high probability that they will produce the expected results. There are also recognized patterns that repeat themselves on a consistent basis.
3. History repeats itself. Forex chart patterns have been recognized and categorized for over 100 years, and the manner in which many patterns are repeated leads to the conclusion that human psychology changes little over time. Since patterns have worked well in the past, it is assumed that they will continue to work well into the future.

Want to learn more about the advantages and disadvantages of Technical analysis? Get complete currency trading eBook FREE Download it NOW!

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Major Economic Indicators

Economic indicators play a huge role in the forex market, particularly in the form of fundamental analysis. Some of the most influential indicators for the dollar include Non Farm Payroll, Federal Open Market Committee (FOMC) interest rate decisions, trade balance, Consumer Price Index (CPI), and retail sales.

Non Farm Payroll (NFP) is a good indicator of the employment rate and overall strength of the labor market. It represents all business employees excluding general government employees, private household employees, and employees of nonprofit organizations, accounting for about 80% of the workers who contribute to GDP. The full report also includes estimates on the average work week and weekly earnings of these employees. As a general indicator of the health of the economy, usually the dollar in forex trading is affected more the further from expectations the figure for NFP turns out to be. The general trend for NFP since 1990 has been increasing. Overall, NFP has increased from 109,144 in January of 1990 to 135,106 in May of 2006. Generally, when NFP is lower than expected traders will begin to sell the US dollar on the belief that it is weakening. The opposite is true for an unexpectedly high NFP. NFP is released at 8:30am EST on the first Friday of every month and tends to cause an average move of 124 pips in the EUR/USD.

Federal Open Market Committee (FOMC) decisions in general indicate the overall strength of the economy. The FOMC sets the discount rate or federal funds rate (the rate that the Federal Reserve Bank charges member banks for overnight loans) which is highly influential on the forex market. Because interest rates are set higher to induce foreign investment and therefore fight inflation during times of prosperity and lower to increase spending during recessions, they are an important indicator of the strength of the dollar. Increases in interest rates tend to lead to a strengthening of the dollar, while decreases usually precede a depreciation. Therefore, following rate hikes traders usually buy the dollar, anticipating an increase in its value. The opposite is true when the FOMC reduces rates. For the past 15 years the federal funds rate has experienced a net decrease, from 8.23% in January of 1990 to 4.94% in May of 2006, with periods of significant variance inbetween. There are eight scheduled FOMC meetings per year, each of which is usually followed by an average move of about 74 pips in the EUR/USD.

Trade balance measures the difference in value of the goods and services the US imports and those that it exports. From another perspective, it may also be considered the difference between national savings and national investment. A surplus exists if the exports exceed the imports, and a deficit, the current situation for the US, exists if the opposite is true. The balance can be affected by a variety of factors, including prices of domestic goods, exchange rates, trade agreements or barriers, and other trade regulations such as tariffs. Trade surpluses are generally not bad for the economy, but may lead to harmful protectionist policies. Deficits may lead to loss of jobs and problems with debt servicing. The US has had a trade deficit since the 1970s, at $101.7 billion in 1990, $716.7 billion in 2005, and continuously increasing. This could be because of the dollar’s use as a reserve currency and its overall strength, the growth of the US economy, high demand for American investment assets, rising oil prices, and globalization. Depreciating the dollar could be a possible solution to this imbalance, through a variety of methods. This would give consumers less purchasing power, ideally leading to a decrease in imports. This makes the trade balance less relevant as an immediate influence on forex trading but rather valuable as an alert to likely future Fed decisions. In general, however, a deficit is considered a sign of US economic weakness and therefore may lead traders to short the dollar. Trade balance is usually released near the middle of the second month after the reporting period and is followed by an average move of 64 pips in the price of the EUR/USD.

The Consumer Price Index (CPI) is a statistical measure representing inflation based on a fixed basket of consumer goods. Used to deflate other economic indicators and set wages, CPI is useful throughout the economy. The US CPI has been steadily increasing for the past 15 years, from 127.5 in January of 1990 to 201.0 in April of 2006. The response of traders to CPI is difficult to predict because although a high CPI is a signal of trouble in the economy, prompting traders to short the USD, it also tends to forecast interest rate increases by the Fed to which traders usually respond by buying. CPI is released around the 13th of every month at 8:30am EST followed by an average move in the EUR/USD of 44 pips.

Retail sales is a figure measuring the amount of goods sold by a sampling of stores, meant to be representative of consumer activity and confidence in the economy. Therefore, high retail sales numbers imply a strong economy. The retail trade sector, as delineated in the North American Industry Classification System (NAICS) is considered to include companies selling finished goods or rendering services incidental to the sale of finished goods. Since 1992 the US retail sales numbers have been steadily increasing, jumping from $147.14 billion in January of 1990 to $328.77 billion in May of 2006. Generally forex traders respond positively to high US retail sales numbers and long the dollar, shorting it when the figure is lower than expected. Retail sales numbers are announced around the 11th of every month at 8:30am EST causing an average 44-pip movement in the EUR/USD

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Forex Fundamental Analysis

Forex fundamental analysis is one of two widely recognized approaches to foreign exchange market analysis.

An alternative to technical analysis, which makes use of market trends (i.e. chart analysis) to determine the future value of a particular currency in the FX market, fundamental analysis describes methods of present and future valuation determined by social, economic, and political variables. While technical analysis is praised for its effectiveness at predicting short-term trends (under 3 months), the fundamental analysis approach is better suited at forecasting long-term movement in the FX market.Employing fundamental analysis strategies requires a basic understanding of supply and demand, the underlying force behind all financial markets. In the case of the FX market, the commodity being exchanged is a particular currency. Because the value of a currency is derived from the economic health of its respective country, global (or local) macroeconomic changes can invariably have an impact on currency rates. Fundamental analysis itself is broken down into two broad subcategories: capital flows and trade flows.

Capital Flows in Fundamental Analysis
A country's capital flows are the net quantity of currency being traded through capital investments, including equity market investments, fixed income market investments, third party licensing agreements, joint ventures, and foreign direct investment—all of which must be considered in fundamental analysis. The first two are the flow of portfolio investments and international government bonds, while the latter three represent the physical flows of capital that serve as financial indicators of stability and growth. Together, they are known as the capital flows.

Trade Flows in Fundamental Analysis
Also known as current accounts, these flows measure the net of imports and exports of a particular country, and the subsequent impact that these flows can have on the value of a currency. The reason that international trade plays an important role in fundamental analysis, and ultimately in FX market, is that importers are required to sell currency used to purchase goods and services being exported. Following this logic, countries that have positive trade flows (exports are higher than imports) run surpluses that serve to increase their currency, while the opposite is true of net importers. This aspect of fundamental analysis is one of the most influential, frequently providing insights into movements in a currency's price.

For more information regarding Fundamental Analysis, see the links in the left section: you can:

• Review information on six major economic indicators,
• Browse links for applicable foreign exchange news sites,
• See a listing of major governmental web pages and other sources of direct fundamental information feeds
• Look at a selection of recommended foreign exchange brokers to begin your own excursion in foreign exchange trading.

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Fundamental Analysis: What Is It?

In this section we are going to review the basics of fundamental analysis, examine how it can be broken down into quantitative and qualitative factors, introduce the subject of intrinsic value and conclude with some of the downfalls of using this technique.

The Very Basics

When talking about stocks, fundamental analysis is a technique that attempts to determine a security’s value by focusing on underlying factors that affect a company's actual business and its future prospects. On a broader scope, you can perform fundamental analysis on industries or the economy as a whole. The term simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price movements. Fundamental analysis serves to answer questions, such as:

• Is the company’s revenue growing?
• Is it actually making a profit?
• Is it in a strong-enough position to beat out its competitors in the future?
• Is it able to repay its debts?
• Is management trying to "cook the books"?

Of course, these are very involved questions, and there are literally hundreds of others you might have about a company. It all really boils down to one question: Is the company’s stock a good investment? Think of fundamental analysis as a toolbox to help you answer this question. Note: The term fundamental analysis is used most often in the context of stocks, but you can perform fundamental analysis on any security, from a bond to a derivative. As long as you look at the economic fundamentals, you are doing fundamental analysis. For the purpose of this tutorial, fundamental analysis always is referred to in the context of stocks.

Fundamentals: Quantitative and Qualitative

You could define fundamental analysis as “researching the fundamentals”, but that doesn’t tell you a whole lot unless you know what fundamentals are. As we mentioned in the introduction, the big problem with defining fundamentals is that it can include anything related to the economic well-being of a company. Obvious items include things like revenue and profit, but fundamentals also include everything from a company’s market share to the quality of its management. The various fundamental factors can be grouped into two categories: quantitative and qualitative. The financial meaning of these terms isn’t all that different from their regular definitions. Here is how the MSN Encarta dictionary defines the terms :

• Quantitative – capable of being measured or expressed in numerical terms.
• Qualitative – related to or based on the quality or character of something, often as opposed to its size or quantity.

In our context, quantitative fundamentals are numeric, measurable characteristics about a business. It’s easy to see how the biggest source of quantitative data is the financial statements. You can measure revenue, profit, assets and more with great precision. Turning to qualitative fundamentals, these are the less tangible factors surrounding a business - things such as the quality of a company’s board members and key executives, its brand-name recognition, patents or proprietary technology.

Quantitative Meets Qualitative

Neither qualitative nor quantitative analysis is inherently better than the other. Instead, many analysts consider qualitative factors in conjunction with the hard, quantitative factors. Take the Coca-Cola Company, for example. When examining its stock, an analyst might look at the stock’s annual dividend payout, earnings per share, P/E ratio and many other quantitative factors. However, no analysis of Coca-Cola would be complete without taking into account its brand recognition. Anybody can start a company that sells sugar and water, but few companies on earth are recognized by billions of people. It’s tough to put your finger on exactly what the Coke brand is worth, but you can be sure that it’s an essential ingredient contributing to the company’s ongoing success.

The Concept of Intrinsic Value

Before we get any further, we have to address the subject of intrinsic value. One of the primary assumptions of fundamental analysis is that the price on the stock market does not fully reflect a stock’s “real” value. After all, why would you be doing price analysis if the stock market were always correct? In financial jargon, this true value is known as the intrinsic value. For example, let’s say that a company’s stock was trading at $20. After doing extensive homework on the company, you determine that it really is worth $25. In other words, you determine the intrinsic value of the firm to be $25. This is clearly relevant because an investor wants to buy stocks that are trading at prices significantly below their estimated intrinsic value. This leads us to one of the second major assumptions of fundamental analysis: in the long run, the stock market will reflect the fundamentals. There is no point in buying a stock based on intrinsic value if the price never reflected that value. Nobody knows how long “the long run” really is. It could be days or years. This is what fundamental analysis is all about. By focusing on a particular business, an investor can estimate the intrinsic value of a firm and thus find opportunities where he or she can buy at a discount. If all goes well, the investment will pay off over time as the market catches up to the fundamentals.

The big unknowns are:

1. You don’t know if your estimate of intrinsic value is correct; and
2. You don’t know how long it will take for the intrinsic value to be reflected in the marketplace.

Criticisms of Fundamental Analysis

The biggest criticisms of fundamental analysis come primarily from two groups: proponents of technical analysis and believers of the “efficient market hypothesis”. Technical analysis is the other major form of security analysis. We’re not going to get into too much detail on the subject. (More information is available in our Introduction to Technical Analysis tutorial.)

Year after year, key players in the Forex market make a killing by picking the right currencies – now it’s your turn. Access industry gurus Boris and Kathy’s exclusive FREE report, The Five Things That Move the Currency Market – And How to Profit From Them, right now! Put simply, technical analysts base their investments (or, more precisely, their trades) solely on the price and volume movements of securities. Using charts and a number of other tools, they trade on momentum, not caring about the fundamentals. While it is possible to use both techniques in combination, one of the basic tenets of technical analysis is that the market discounts everything. Accordingly, all news about a company already is priced into a stock, and therefore a stock’s price movements give more insight than the underlying fundamental factors of the business itself. Followers of the efficient market hypothesis, however, are usually in disagreement with both fundamental and technical analysts. The efficient market hypothesis contends that it is essentially impossible to produce market-beating returns in the long run, through either fundamental or technical analysis. The rationale for this argument is that, since the market efficiently prices all stocks on an ongoing basis, any opportunities for excess returns derived from fundamental (or technical) analysis would be almost immediately whittled away by the market’s many participants, making it impossible for anyone to meaningfully outperform the market over the long term.

By Cory Janssen, Co-Founder, Investopedia.com; Ben McClure, Contributor - Investopedia Advisor and Investopedia Staff, (Investopedia.com)

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The Basics of Forex Trading Economic Indicators

Economic indicators are an essential and primary part of the world of economy and the Forex trading market. In our previous articles about different approaches towards market analysis we have briefly discussed this concepts and emphasized their affect on your trading system. In this article we will try to illuminate the importance of this indicators even further. The term 'economic indicators' stands for a wide variety of financial statistics, figures and evaluations. This info is being processed, studied and then released by several financial establishments around the world, such as national treasuries and large investment banks.
The Forex trading indicators are a powerful device that is used by these establishments to better understand and trace the changes in the world economy. Although the indicators originally had a different function they are now closely watched by all investors around the world. Each smart investor waits anxiously to the release date of each of the indicators and knows how to act upon them. Most people presume that it is almost impossible to understand economical concepts such as indicators without an economics school degree. This is of course false. If you want to use indicators as a tool to improve your forex trading then you are more than able to do this without any academic education. In this series of articles we will present you with several guiding principles that are bound to turn you into a better forex trader in no time.
The first thing on your list is to learn the release dates of each of the economical indicators. Keeping an organized calendar near your trading station (your home or office computer) with each of the release dates marked will make the job much easier. You can find all the release dates for all the indicators in many places around the net but generally the best places to look are http://www.ny.frb.org/ and http://www.worldbank.org/. Following the calendar will be very useful in more than one way. Many price shifts and sudden rallies that could confuse you in the past are now easily explained by their proximity to one of the release dates. The calendar will help you feel the pulse of the forex market. Economic indicators can affect the market both in a immediate straightforward manner and also in a more subtle, roundabout way. When traders act upon the data that they learned from the indicators this is a direct affect of the indicator's release. When traders move to better positions according to their expectations of the indicator, this is an indirect affect on the market. When prices shift just before the release date of a certain indicator because traders move to a better position according to what they expect from an indicator, it is an indirect affect on the market. We strongly advise you to keep reading our next articles which will deal with more advanced concepts of economic indicators.

By Dan Princeton, Editor

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Forex for Dummies

Forex Basics
If you've already read the "What is Forex?" section then you should know what Forex market is and what it is all about. If not, please, do it. There are five essential aspects of foreign currency market a beginner trader (and an old one as well) should be aware of :

• Forex Fundamental Analysis
• Forex Technical Analysis
• Money Management
• Forex Trading Psychology
• Forex Brokerage

Understanding and mastering these sides of trading are crucial to organize your Forex trading experience.

Forex Fundamental Analysis
Fundamental analysis is the process of market analysis which is done regarding only "real" events and macroeconomic data which is related to the traded currencies. Fundamental analysis is used not only in Forex but can be a part of any financial planning or forecasting. Concepts that are part of Forex fundamental analysis: overnight interest rates, central banks meetings and decisions, any macroeconomic news, global industrial, economical, political and weather news. Fundamental analysis is the most natural way of making Forex market forecasts. In theory, it alone should work perfectly, but in practice it is often used in pair with technical analysis. Recommended e-books on Forex fundamental analysis :

• Reminiscences of a Stock Operator
• What Moves the Currency Market?

Forex Technical Analysis
Technical analysis is the process of market analysis that relies only on market data numbers - quotes, charts, simple and complex indicators, volume of supply and demand, past market data, etc. The main idea behind Forex technical analysis is the postulate of functional dependence of the future market technical data on the past market technical data. As well as with fundamental analysis, technical analysis is believed to be self-sufficient and you can use only it to successfully trade Forex. In practice, both analysis methods are used. Recommended e-books on Forex fundamental analysis are :

• The Law Of Charts
• Candlesticks For Support And Resistance
• Trend Determination

Money Management in Forex
Even if you master every possible method of market analysis and will make very accurate predictions for future Forex market behavior, you won't make any money without a proper money management strategy. Money management in Forex (as well as in other financial markets) is a complex set of rules which you develop to fit your own trading style and amount of money you have for trading. Money management play very important role in getting profits out of Forex; do not underestimate it. To get more information on money management you can read these books :

• Risk Control and Money Management
• Money Management (A chapter from The Mathematics of Gambling)
  

Forex Trading Psychology
While learning a lot about market analysis and money management is an obvious and necessary step to be a successful Forex traders, you also need to master your emotions to keep your trading performance under strict control of mind and intuition. Controlling your emotions in Forex trading is often a balancing between greed and cautiousness. Almost any known psychology practices and techniques can work for Forex traders to help them keep to their trading strategies rather to their spontaneous emotions. Problems you'll have to deal while being a professional Forex trader:

• Your greed
• Overtrading
• Lack of discipline
• Lack of confidence
• Blind following others' forecasts

These are very professional books on psychology written specially for financial traders :

• Calming The Mind So That Body Can Perform
• Emotion Free Trading
• The Miracle of Discipline

Forex Brokerage
Every Forex trader like any other professional needs tools to trade. One of these tools, which is vital to be in market, is a Forex broker and specifically for Internet - on-line Forex broker - a company which will provide real-time market information to trader and bring his orders to Forex market. While choosing a right Forex broker things to look for are the following :

• Being a professional company you can trust
• Provide you with real-time quotes
• Execute your orders fast and accurately
• Don't take a lot of commissions
• Support the withdraw/deposit methods you use

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What is Forex?

FOREX - the foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is one of the largest markets in the world.
Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.
In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.
Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with forex brokers, brokers with banks, and banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets.
Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study.
Like any market there is a bid/offer spread (difference between buying price and selling price). On major currency crosses, the difference between the price at which a market maker will sell ("ask", or "offer") to a wholesale customer and the price at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only 1 or 2 pips. In the EUR/USD price of 1.4238 a pip would be the '8' at the end. So the bid/ask quote of EUR/USD might be 1.4238/1.4239.
This, of course, does not apply to retail customers. Most individual currency speculators will trade using a broker which will typically have a spread marked up to say 3-20 pips (so in our example 1.4237/1.4239 or 1.423/1.425). The broker will give their clients often huge amounts of margin, thereby facilitating clients spending more money on the bid/ask spread. The brokers are not regulated by the U.S. Securities and Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not typically charge margin interest, however since currency trades must be settled in 2 days, they will "resettle" open positions (again collecting the bid/ask spread).
Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.

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Forex Trading History

Foreign exchange of currencies can be dated back to ancient times, when merchants of different sorts traded coins from country to country. In ancient Egypt the first coins were used, and paper notes were added later on by the Babylonians. The history of Forex continues in the middle ages when foreign exchange was maintained by international banks. This enabled a growth of the European powers and contributed to the spread of foreign currencies throughout Europe and the middle east. The history of Forex is therefore perhaps the longest of all the other markets, and this is one of the advantages of Forex over other market options.

1816-The Gold Standard Changes Forex History
The gold standard was a trading standard that was used as a fixed value for trading commodities. This means a certain weight in gold was established and used to trade for other currencies. This started to be in use in 1816, when the British pound was defined as 123.27 grains of gold. This meant that the British banks had a specific value that was defined and this in turn helped set the UK standard currency as stable.
The US adopted the gold standard in 1879 and replaced the British pound when the European nations stopped using the gold standard in the outbreak of World War I.

1944 - The Bretton Woods System
By the end of WW II, the economical status of the world's great nations had changed. The UK had suffered a great financial blow and its economical state was disastrous, while the US had remained relatively unchanged by the war. The dollar rose as the new standard of the financial market. At a conference held at Bretton Woods in the US in 1944, a new international financial framework was introduced into Forex history. The US dollar now became the new global reserve currency, when other currencies where set according to the dollar. At this summit the US, UK and France met in order to try and better the European economies scathed by the war, and to create a stable environment by which the global economies could restore themselves. The Bretton Woods Accord established the pegging of currencies and the International Monetary Fund (IMF), and established the world bank.

1973 - The Floating Exchange Rates
By 1972 a few major countries, such as the UK, suffered economical difficulties and initiated the floating of their currencies. The Smithsonian agreement was signed in 1971 and meant creating a more flexible agreement than Bretton woods where currencies had the ability to fluctuate more. The European market also tried to move from its dependency on the US dollar with more joints and agreements signed to ensure currencies' extended flexibility. Both the Smithsonian agreement and the European Joint Float collapsed, signifying the official switch to a free-floating currency system. Governments were now free to peg their currencies or allow them to freely float. In 1978, the free-floating system was officially mandated, but like previous attempts failed in 1993.

1994 - Forex History Changes With The Introduction of The Internet
During 1994, online currency trading made its debut, with the first online Forex transaction done. Since then, the market has grown to what it is today, with a total circle of more than $1.9 trillion every day. The big change in Forex history is that now anyone could participate and invest in the market. The vast amount of people trading online Forex is due mostly to the option of margin investments that are available with online Forex trading.

2002 - The Arrival of the Euro to Forex Trading
On January 1, 2002, the history of Forex trading was changed with the introduction of the Euro as the official currency between twelve European nations. The Euro is now the second most frequently traded currency in Forex markets. The countries first added to the Euro currency were: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. More details on the Forex market is available at Forex info. Forex History can be seen as spanning only one decade, or it can be measures from ancient times when coins were swapped. In any case no one undermines the importance of the Forex market today.

Written by Debbie Graham - Section Editor published with www.fxinfo.com

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Forex Glossary

Ask (Offer) — price of the offer, the price you buy for.
Bank Rate — the percentage rate at which central bank of a country lends money to the country's commercial banks.
Bid — price of the demand, the price you sell for.
Broker — the market participating body which serves as the middleman between retail traders and larger commercial institutions.
Cable — a Forex traders slang word GBP/USD currency pair.
Carry Trade — in Forex, holding a position with a positive overnight interest return in hope of gaining profits, without closing the position, just for the central banks interest rates difference.
CFD — a Contract for Difference - special trading instrument that allows financial speculation on stocks, commodities and other instruments without actually buying.
Commission — broker commissions for operation handling.
CPI — consumer price index the statistical measure of inflation based upon changes of prices of a specified set of goods.
EA (Expert Advisor) — an automated script which is used by the trading platform software to manage positions and orders automatically without (or with little) manual control.
ECN Broker — a type of Forex brokerage firm that provide its clients direct access to other Forex market participants. ECN brokers don't discourage scalping, don't trade against the client, don't charge spread (low spread is defined by current market prices) but charge commissions for every order.
ECB (European Central Bank) — the main regulatory body of the European Union financial system.
Fed (Federal Reserve) — the main regulatory body of the United States of America financial system, which division - FOMC (Federal Open Market Committee) - regulates, among other things, federal interest rates.
Fibonacci Retracements — the levels with a high probability of trend break or bounce, calculated as the 23.6%, 32.8%, 50% and 61.8% of the trend range.
Flat (Square) — neutral state when all your positions are closed.
Fundamental Analysis — the analysis based only on news, economic indicators and global events.
GTC (Good Till Cancelled) — order to buy or sell of a currency with a fixed price or worse. The order is alive (good) until execution or cancellation.
Hedging — maintaining a market position which secures the existing open positions in the opposite direction.
Jobber — a slang word for a trader which is aimed toward fast but small and short-term profit from an intra-day trading. Jobber rarely leaves open positions overnight.
Kiwi — a Forex slang name for the New Zealand currency - New Zealand dollar.
Limit Order — order for a broker to buy the lot for fixed or lesser price or sell the lot for fixed or better price. Such price is called limit price.
Liquidity — the measure of markets which describes relationship between the trading volume and the price change.
Long — the position which is in a Buy direction. In Forex, the primary currency when bought is long and another is short.
Loss — the loss from closing long position at lower rate than opening or short position with higher rate than opening, or if the profit from a position closing was lower than broker commission on it.
Lot — definite amount of units or amount of money accepted for operations handling (usually it is a multiple of 100).
Margin — money, the investor needs to keep at broker account to execute trades. It supplies the possible losses which may occur in margin trading.
Margin Account — account which is used to hold investor's deposited money for FOREX trading.
Margin Call — demand of a broker to deposit more margin money to the margin account when the amount in it falls below certain minimum.
Market Order — order to buy or sell a lot for a current market price.
Market Price — the current price for which the currency is traded for on the market.
Offer (Ask) — price of the offer, the price you buy for.
Open Position (Trade) — position on buying (long) or selling (short) for a currency pair.
Order — order for a broker to buy or sell the currency with a certain rate.
Pivot Point — the primary support/resistance point calculated basing on the previous trend's High, Low and Close prices.
Pip (Point) — the last digit in the rate (e.g. for EUR/USD 1 point = 0.0001).
Profit (Gain) — positive amount of money gained for closing the position.
Principal Value — the initial amount of money of the invested.
Realized Profit/Loss — gain/loss for already closed positions.
Resistance — price level for which the intensive selling can lead to price increasing (up-trend)
Settled (Closed) Position — closed positions for which all needed transactions has been made.
Slippage — execution of order for a price different than expected (ordered), main reasons for slippage are - "fast" market, low liquidity and low broker's ability to execute orders.
Spread — difference between ask and bid prices for a currency pair.
Stop-Limit Order — order to sell or buy a lot when the market reaches certain price. Usually is a combination of stop-order and limit-order.
Stop-Loss Order — order to sell or buy a lot for a certain price or worse. It is used to avoid extra losses when market moves in the opposite direction.
Support — price level for which intensive buying can lead to the price decreasing (down-trend). Technical Analysis — the analysis based only on the technical market data (quotes) with the help of various technical indicators.
Trend — direction of market which has been established with influence of different factors.
Unrealized (Floating) Profit/Loss — a profit/loss for your non-closed positions.
Useable Margin — amount of money in the account that can be used for trading.
Used Margin — amount of money in the account already used to hold open positions open.
Volatility — a statistical measure of the number of price changes for a given currency pair in a given period of time.

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Trading with Strategy

Trading successfully is by no means a simple matter. It requires time, market knowledge and market understanding and a large amount of self restraint. ACM does not manage accounts, nor does it give market advice, that is the job of money managers and introducing brokers.
As market professionals, we can however point the novice in the right direction and indicate what are correct trading tactics and considerations and what is total nonsense.
Anyone who says you can consistently make money in foreign exchange markets is being untruthful.
Foreign exchange by nature, is a volatile market. The practice of trading it by way of margin increases that volatility exponentially. We are therefore talking about a very 'fast market' which is naturally inconsistent. Following that precept, it is logical to say that in order to make a successful trade, a trader has to take into account technical and fundamental data and make an informed decision based on his perception of market sentiment and market expectation. Timing a trade correctly is probably the most important variable in trading successfully but invariably there will be times where a traders' timing will be off. Don't expect to generate returns on every trade.

Let's enumerate what a trader needs to do in order to put the best chances for profitable trades on his side :

Trade with money you can afford to lose :

Trading fx markets is speculative and can result in loss, it is also exciting, exhilarating and can be addictive. The more you are 'involved with your money' the harder it is to make a clear-headed decision. Money you have earned is precious, but money you need to survive should never be traded.

Identify the state of the market :

What is the market doing? Is it trending upwards, downwards, is it in a trading range. Is the trend strong or weak, did it begin long ago or does it look like a new trend that's forming. Getting a clear picture of the market situation is laying the groundwork for a successful trade.

Determine what time frame you're trading on :

Many traders get in the market without thinking when they would like to get out, after all the goal is to make money. This is true but when trading, one must extrapolate in his mind's eye the movement that one expects to happen. Within this extrapolation, resides a price evolution during a certain period of time. Attached to this is the idea of exit price. The importance of this is to mentally put your trade in perspective and although it is clearly impossible to know exactly when you will exit the market, it is important to define from the outset if you'll be 'scalping' (trying to get a few points off the market) trading intra-day, or going longer term.

This will also determine what chart period you're looking at. If you trade many times a day, there's no point basing your technical analysis on a daily graph, you'll probably want to analyse 30 minute or hour graphs. Additionally it is important to know the different time periods when various financial centers enter and exit the market as this creates more or less volatility and liquidity and can influence market movements.

Time your trade :

You can be right about a potential market movement but be too early or too late when you enter the trade. Timing considerations are twofold, an expected market figure like CPI, retail sales or a federal reserve decision can consolidate a movement that's already underway. Timing your move means knowing what's expected and taking into account all considerations before trading. Technical analysis can help you identify when and at what price a move may occur. We will look at technical analysis in more detail later.
If in doubt, stay out:If you're unsure about a trade and find you're hesitating, stay on the sidelines.

Trade logical transaction sizes :

Margin trading allows the fx trader a very large amount of leverage, trading at full margin capacity (in ACM's case 1% or 0.5%) can make for some very large profits or losses on an account. Scaling your trades so that you may re-enter the market or make transactions on other currencies is generally wiser. In short, don't trade amounts that can potentially wipe you out and don't put all your eggs in one basket. ACM offers the same rates regardless of transaction sizes so a customer has nothing to lose by starting small.

Gauge market sentiment:

Market sentiment is what most of the market is perceived to be feeling about the market and therefore what it is doing or will do. This is basically about trend. You may have heard the term 'the trend is your friend', this basically means that if you're in the right direction with a strong trend you will make successful trades. This of course is very simplistic, a trend is capable of reversal at any time. Technical and fundamental data can indicate however if the trend has begun long ago and if it is strong or weak.

Market expectation :

Market expectation relates to what most people are expecting as far as upcoming news is concerned. If people are expecting an interest rate to rise and it does, then there usually will not be much of a movement because the information will already have been 'discounted' by the market, alternatively if the adverse happens, markets will usually react violently.

Use what other traders use :

In a perfect world, every trader would be looking at a 14 day RSI and making trading decisions based on that. If that was the case, when RSI would go under the 30 level, everyone would buy and by consequence the price would rise. Needless to say, the world is not perfect and not all market participants follow the same technical indicators, draw the same trendlines and identify the same support & resistance levels. The great diversity of opinions and techniques used translates directly into price diversity. Traders however have a tendency to use a limited variety of technical tools. The most common are 9 and 14 day RSI, obvious trendlines and support levels, fibonnacci retracement, MACD and 9, 20 & 40 day exponential moving averages. The closer you get to what most traders are looking at, the more precise your estimations will be. The reason for this is simple arithmetic, larger numbers of buyers than sellers at a certain price will move the market up from that price and vice-versa.

This article written by Nicholas H. Bang

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Mistakes in a Trading Environment

When it comes to trading, one of the most neglected subjects are those dealing with trading psychology. Most traders spend days, months and even years trying to find the right system. But having a system is just part of the game. Don't get us wrong, it is very important to have a system that perfectly suits the trader, but it is as important as having a money management plan, or to understand all psychology barriers that may affect the trader decisions and other issues. In order to succeed in this business, there must be equilibrium between all important aspects of trading.
In the trading environment, when you lose a trade, what is the first idea that pops up in your mind? It would probably be, "There must be something wrong with my system", or "I knew it, I shouldn't have taken this trade" (even when your system signaled it). But sometimes we need to dig a little deeper in order to see the nature of our mistake, and then work on it accordingly.
When it comes to trading the Forex market as well as other markets, only 5% of traders achieve the ultimate goal: to be consistent in profits. What is interesting though is that there is just a tiny difference between this 5% of traders and the rest of them. The top 5% grow from mistakes; mistakes are a learning experience, they learn an invaluable lesson on every single mistake made. Deep in their minds, a mistake is one more chance to try it harder and do it better the next time, because they know they might not get a chance the next time. And at the end, this tiny difference becomes THE big difference.

Mistakes in the trading environment
Most of us relate a trading mistake to the outcome (in terms of money) of any given trade. The truth is, a mistake has nothing to do with it, mistakes are made when certain guidelines are not followed. When the rules you trade by are violated. Take for instance the following scenarios :

First scenario: The system signals a trade.

• Signal taken and trade turns out to be a profitable trade.
  Outcome of the trade : Positive, made money.
  Experience gained : Its good to follow the system, if I do this consistently the odds will turn in my favor. Confidence is gained in both the trader and the system.
  Mistake made : None.
• Signal taken and trade turns out to be a loosing trade.
  Outcome of the trade : Negative, lost money.
  Experience gained : It is impossible to win every single trade, a loosing trade is just part of the business; our raw material, we know we can't get them all right. Even with this lost trade, the trader is proud about himself for following the system. Confidence in the trader is gained.
  Mistake made : None.
• Signal not taken and trade turns out to be a profitable trade.
  Outcome of the trade : Neutral.
  Experience gained : Frustration, the trader always seems to get in trades that turned out to be loosing trades and let the profitable trades go away. Confidence is lost in the trader self.
  Mistake made : Not taking a trade when the system signaled it.
• Signal not taken and trade turns out to be a loosing trade.
  Outcome of the trade : Neutral.
  Experience gained : The trader will start to think "hey, I'm better than my system". Even if the trader doesn't think on it consciously, the trader will rationalize on every signal given by the system because deep in his or her mind, his or her "feeling" is more intelligent than the system itself. From this point on, the trader will try to outguess the system. This mistake has catastrophic effects on our confidence to the system. The confidence on the trader turns into overconfidence.
  Mistake made : Not taking a trade when system signaled it

Second Scenario: System does not signal a trade.

• No trade is taken
  Outcome of the trade : Neutral
  Experience gained : Good discipline, we only need to take trades when the odds are in our favor, just when the system signals it. Confidence gained in both the trader self and the system.
  Mistake made : None
• A trade is taken, turns out to be a profitable trade.
  Outcome of the trade : Positive, made money.
  Experience gained : This mistake has the most catastrophic effects in the trader self, the system and most importantly in the trader's trading career. You will start to think you need no system, you know better from them all. From this point on, you will start to trade based on what you think. Confidence in the system is totally lost. Confidence in the trader self turns into overconfidence.
  Mistake made : Take a trade when there was no signal from the system.
• A trade is taken, turned out to be a loosing trade.
  Outcome of the trade : negative, lost money.
  Experience gained : The trader will rethink his strategy. The next time, the trader will think it twice before getting in a trade when the system does not signal it. The trader will go "Ok, it is better to get in the market when my system signals it, only those trade have a higher probability of success". Confidence is gained in the system.
  Mistake made : Take a trade when there was no signal from the system
  As you can see, there is absolutely no correlation between the outcome of the trade and a mistake. The most catastrophic mistake even has a positive trade outcome, made money, but this could be the beginning of the end of the trader's career. As we have already stated, mistakes must only be related to the violation of rules a trader trades by.
  All these mistakes were directly related to the signals given by a system, but the same is applied when getting out of a trade. There are also mistakes related to following a trading plan. For example, risking more money on a given trade than the amount the trader should have risked and many more.
  Most mistakes can be avoided by first having a trading plan. A trading plan includes the system : the criteria we use to get in and out the market, the money management plan : how much we will risk on any given trade, and many other points. Secondly, and most important, we need to have the discipline to follow strictly our plan. We created our plan when no trade was placed on, thus no psychology barriers were up front. So, the only thing we are certain about is that if we follow our plan, the decision taken is on our best interests, and in the long run, these decisions will help us have better results. We don't have to worry about isolated events, or trades that could had give us better results at first, but then they could have catastrophic results in our trading career.

How to deal with mistakes
There are many possible ways to properly manage mistakes. We will suggest the one that works better for us.

Step one: Belief change.
Every mistake is a learning experience. They all have something valuable to offer. Try to counteract the natural tendency of feeling frustrated and approach mistakes in a positive manner. Instead of yelling to everyone around and feeling disappointed, say to yourself "ok, I did something wrong, what happened? What is it?

Step two: Identify the mistake made.
Define the mistake, find out what caused the mistake, and try as hard as you can to effectively see the nature of that mistake. Finding the mistake nature will prevent you from making the same mistake again. More than often you will find the answer where you less expected. Take for instance a trader that doesn't follow the system. The reason behind this could be that the trader is afraid of loosing. But then, why is he or she afraid? It could be that the trader is using a system that does not fit him or her, and finds difficult to follow every signal. In this case, as you can see, the nature of the mistake is not in the surface. You need to try as hard as you can to find the real reason of the given mistake.

Step three: Measure the consequences of the mistake.
List the consequences of making that particular mistake, both good and bad. Good consequences are those that make us better traders after dealing with the mistake. Think on all possible reasons you can learn from what happened. For the same example above, what are the consequences of making that mistake? Well, if you don't follow the system, you will gradually loose confidence in it, and this at the end will put you into trades you don't really want to be, and out of trades you should be in.

Step four: Take action.
Taking proper action is the last and most important step. In order to learn, you need to change your behavior. Make sure that whatever you do, you become "this-mistake-proof". By taking action we turn every single mistake into a small part of success in our trading career. Continuing with the same example, redefining the system would be the trader's final step. The trader would put a system that perfectly fits him or her, so the trader doesn't find any trouble following it in future signals.
Understanding the fact that the outcome of any trade has nothing to do with a mistake will open your mind to other possibilities, where you will be able to understand the nature of every mistake made. This at the same time will open the doors for your trading career as you work and take proper action on every mistake made.
The process of success is slow, and plenty of times it is attributed to repeated mistakes made and the constant struggle to get past these mistakes, working on them accordingly. How we deal with them will shape our future as a trader, and most importantly as a person.

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Psychology of Trading

As we have discussed before, this discussion forum is to explore the psychology behind the success or failure to trade successfully. As most traders with any experience know, the ability to “call “ the market is relatively easy in comparison to getting properly positioned within the market, and taking the most amount of money from your observation; that is where the real work of lasting trading success really lies. All of us have found the actual bottom or top of a significant move but failed to capitalize on that opportunity for one reason or another.

This month, I would like to address one of the more common trading errors. Everyone has made the error of overtrading at some point and many continue to make this error despite knowing they have this problem. Just knowing you have a propensity for a trading problem is half the battle but more importantly, you need skills and tools to correct your trading error. One of the more critical skills to develop in my view is to stop and confront the problem of overtrading.

Overtrading is a symptom of a deeper psychological problem which I like to call attachment to results. All traders have a certain degree of results they are pursuing in the markets; that is not the problem. The markets exist to exploit inequalities (real or imagined) in the supply and demand of something or financial instruments. It is a good thing to see an opportunity and assume the risk for the potential that is there. Once that action has been taken the only question is whether or not that inequality you perceived is an actual event that is unfolding over time. Between the time you execute for an entry and the time you liquidate for an exit; the markets will be moving. That movement is where the issue of attachment to results translates into your personal results.

Attachment to results can actually be expressed two ways depending on your personal psychology and trade method. The first way is holding losers and the other way is overtrading. We will discuss the issue of holding losses at a later time but the net effect on your equity is the same whether your problem is holding losses too long or you overtrade. Attachment to you results is the bedrock problem behind either overtrading or holding losses. In the case of overtrading, it represents the psychological need for immediate results (or positive results) without the corresponding willingness to allow time to pass. I think it is safe to say that a certain amount of time is required for any trading style to generate a gain and the unwillingness to let the required amount of time to pass comes out in the markets as constant execution over some timeframe.

If you use an hourly timeframe to pick your points of entry it is safe to assume that more than one hour must pass in order to determine if your executed trade has potential as you see it. Should the market move against your position that is to be expected, it is unreasonable to assume you will “buy the low” or “sell the high” every time you trade. As the market moves, if you are attached to your results, that movement means something to you. It is personally helping or hurting your equity. As your account balance changes from open trade equity, your focus narrows down to how this is affecting you personally. Most traders with this problem now seem to forget the high degree of study, preparation and thought they invested into picking that spot to execute. For some reason, the long-term fundamentals are forgotten, the technical studies are re-evaluated in real time, the protective stop order might be moved and the limit order to take the gain is moved closer to the market. Or any number of things. Then this trader executes to exit the market. Prices remain near their entry or advance. Attachment to results now says “You are missing it! You were right!” and this trader now executes again for an entry. As prices return to the first entry price, this trader again has a small open-trade loss; again the trader’s attachment says the trade is not going to work. This process may repeat itself several times over a short period of time, especially if the market is advancing in the intended direction. The problem is not the market price action; the problem is the attachment to results imposed by the trader creating an urge to action that is not consistent with normal ebb and flow of most market action. The trader has failed to allow time to pass and let the market do what it is going to do. During a major price advance or decline that was properly observed, this trader has small gains or even net losses when his just sitting tight for a period of time would have resulted in a nice gain.

Solving this problem is a factor of learning patience as well as adapting your thinking to better fit with the market you trade. I have observed from working with many developing traders that if they have the problem of overtrading, the simplest solution is to impose a new set of rules on their execution that allows time to pass. I have a very common sense based method that I would encourage you to try for yourself. Simply turn your screen off; the assumption here is that the market will do what it will do whether you watch it or not. The problem is not the market price action, the problem is attaching meaning to that action and executing. If you can’t see the price action, you can’t execute. So the first thing we do is impose the rule: After you execute you have to turn the screen off for at least one bar of your time frame as a minimum.

In most cases, several bars are needed to either confirm or deny a trade potential is developing so often the trader must sit in front of a dark screen for several hours. The market is still moving, but in this case, the stop is also still where it was originally placed, the limit is still where it was placed and the trader cannot reevaluate the trade nor do anything except wait. During this time I also require the trader to write out in as much detail as possible exactly his hypothesis for the trade. This keeps the trader focused on the critical thought required to do the trade as opposed to how the tic-by-tic price action is affecting his equity. After enough time, this self-imposed isolation develops into patience to let the trade work. At some point, the trader will no longer need to be “in the dark” and he has the skill to simply sit still and let the trade work.

Next month we will talk more about attachment to results as it comes out when you hold losing positions. In the meantime, if you have a tendency to overtrade; try this method. I think you will be surprised at how fast you learn to let your trades work.

This article written by by Jason Alan Jankovsky, originally published at www.traderslog.com

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Streamster Application

Simple

Easy to use and understand even if you are a beginner Streamster™ trading software gives you the best trading experience available!
Arrange trading windows according to your preference, set advanced options, and much more...
You only need 5 minutes to open your account - and it's free!

Advanced Personalized Charting

The most sophisticated and easy-to-use charting tool with built-in advanced technical indicators. You can trade, view and modify open positions - directly on your charts Modify parameters of technical indicators in real-time and see how they appear immediatelyBuild your chart collection by adding your saved chart configurations

News, Chat, Alerts and Support

Read real-time economic news and forecasts about global economy and markets. Get alerts narrated aloud prior to major scheduled market eventsChat with other traders about market events, exchange trading ideas and learn.

Get help from our support professionals available 24h on support channels.

Diversification and Practice

Trade $10,000 with only $100 in your account using 1% margin on Forex, Index and Commodity desks. If you look for long-term profits, you can invest in funds and reduce your investment risk. No interest charged on your open margin positions. You don't need to start on live market right away - practice with your virtual money first!

One-Click Trading

Buy and sell financial instruments with one mouse click. No commissions or exchange fees on your trades - you can trade as much as you like.

You can start trading with as little as $1!

Open your account for free and get $5 cash reward so you can start trading right away!

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Start Trading Forex With Marketiva

I recomend you to join Marketiva for your trading forex partner. By signing Marketiva, you will be rewarded free $5 (real money) to trade in live trading and $10.000 for virtual trading that you can use to exercise your initial trading.. In Marketiva you will also be supported by marketiva team for 24 hours. You can also chat with the Marketiva support team and other cahtter.

To start trading forex, you may follow this instruction:

1. Click Here to Open An Account (free)


2. Account Identification (for verification your ID)


3. Download our Trading Software - Streamster


4. Sign Up for E-Gold or E-Bullion


5. Login to your account with a Streamster Software


6. Click Here if you want to add more deposit or to withdraw.

1 (one) person can open 1 (one) account only. In case our administration system detects there are multiple accounts registered by the same person, such accounts will be suspended !

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