Month: December 2010

By Dave Johansen

Here are some of the most common forex trading mistakes that you need to avoid. These are mistakes that all traders make at some point, no matter how experienced they may be. It’s all about having a forex trading plan and a trading discipline.

The Right Time To Exit

The most common mistake in forex trading is taking profits on your winning trades too soon and conversely hanging on to losing trades for too long.

You can’t lose money taking profits? No, of course you can’t but remember you are bound to have losing positions and the key is to make sure your winning trades run for long enough to keep your overall account in profit.

You must follow a trading plan with stop-loss orders and you must stick to it rigidly to accept small losses.

Trading Without A Plan

The best way to avoid forex trading mistakes is to trade with a clear plan.

Opening a forex trade without an exit strategy is an invitation to losses. If the market moves against you, will you be able to exit the trade with the minimum loss? Conversely, when should you take your profits? Without a clear exit strategy in your trading plan you will be trying to act on raw emotion and are unlikely to make the right decisions.

Avoid trading spontaneously, do your research in advance and you will be less likely to be swayed by sudden movements.

Trading Without A Stop Loss

Forex trading without a stop loss strategy is a sure fire way to fail. Having a good stop loss strategy is probably the single most important tool for the forex trader.

As a forex trader your are going to make losing trades. There is no way to avoid them altogether. What you must do is minimise those losses to be as small as possible.

Plan your forex trades in advance and start with an expectation that you you may lose and use a stop loss order to manage your exit strategy.

Moving Your Stop Loss In The Wrong Direction

Moving your stop loss down on a losing trade is almost as bad as having no stop loss at all. In fact you might as well not have one. You must learn to take relatively small losses if you are to succeed overall.

Moving your stop loss up in favour of a winning position is OK as this allows you to lock in your profits.

Don’t Overtrade

Overtrading your forex positions is a common forex trading mistake.
Trading too often suggests that there is always something worth trading. Remember, every time you trade you expose yourself to market risk. Keep disciplined and only trade when good opportunities arise and are part of your overall trading plan.

Trading too many positions at once eats into your margin collateral and reduces your ability to cope should the market move against you.
Also, avoid duplicating a trade. A short EUR/USD position taken with a long EUR/JPY position equates to a long USD/JPY position.

Conclusion

Avoid these common forex trading mistakes and make a plan that fully utilises stop loss positions. Don’t overtrade and take on more than you can easily handle.

About the Author

I’m Dave Johansen, co-owner of ForexForensic.com, a website dedicated to forex trading. You’ll need a top forex broker to get started so be sure to see our eToro Review, the best forex broker in the market.

By Dave Johansen

Forex Traders use three different types of trade to exchange currency: spot; forward and option.

Spot Transactions – Spot transactions are the most common form of forex trade and literally mean trading ‘on the spot’ at the price quoted at the time. Remember, prices move very quickly in the forex market. At any given time the prices quotes on online forex trading platforms is the spot price quoted as both bid and offer.

Forward Transactions – Forward transactions are used when traders which to bull or sell a currency at an agreed future date. Forward transactions can be for a few days ahead or even years in the future though most futures contracts are for 30, 60 or 90 days.

These types of transactions are often taken out by companies that purchase supplies from foreign firms so that they can lock in the exchange rate for the point in the future when they take delivery of the supplies. In this way the companies can be budget for a set amount.

Option transaction – Forex option contracts are similar to forward contracts but offer more flexibility and are therefore more attractive to forex traders. Again the owner of an option contract has the right to buy or sell a currency at a given rate and time in the future but they do not have to fulfil the contract. Instead an option can be allowed to expire or lapse.

There are two types of option contract:-

Call options – the right to buy a currency at a fixed price in the future.
Put options – the right to sell a currency at a fixed price in the future.

Remember, whatever forex trading transactions you prefer to deal in you will need a reasonable understanding of the forex market. You should make sure you pick a good forex broker, one that allows you to practice for free using a dummy account.

About the Author

I’m Dave Johansen, co-owner of ForexForensic.com, a website dedicated to forex trading. You’ll need a top forex broker to get started so be sure to see our eToro Review, the best forex broker in the market.

By James Woolley

There are many people out there who like to trade the shorter time frames such as the 1, 5 and 15 minute charts, and maybe even the 1 hour chart, and some do very well trading this way. However is it a good idea to set yourself daily targets every day?

Well in my experience you have to trade what is in front of you, which means that you have to take the current market conditions into consideration. There will inevitably be times when the markets will be volatile and you can find lots of good trading opportunities using your usual trading system. However there will also be lots of occasions when the markets are very quiet and barely moving throughout the day.

When this happens it is generally best to stay on the sidelines because as soon as you start trying to creating winning positions out of nothing, you will almost inevitably start losing money. Successful forex trading is all about using technical indicators to help you identify high probability trading opportunities. So it is obviously not a good idea to abandon this strategy and start taking impulsive trades on these quieter days when the markets are flat, just to achieve your daily profit target.

I’m firmly of the opinion that setting daily targets is not a good idea. I was always told that not trading at all is often better than opening a high risk position, and this has served me well over the years.

I’m not much of a short-term trader myself, although I do have a few strategies that I use to trade the intraday price charts. I often find that some days are better than others, and so it doesn’t bother me at all if I go the whole day without opening a position.

The only thing I am concerned about is coming out with a profit at the end of the week, and I nearly always achieve this goal because I am very strict about the positions I do open. Every trade has to satisfy a certain set of criteria and I never deviate from this plan of attack.

So as I say, if you do trade the short-term charts and like to trade a few positions every day, you should never try and force a position. If your usual strategy doesn’t come up with any set-ups, then simply walk away because a break-even position is always better than a losing trade. If you forget about daily price targets and focus on building your account slowly and steadily over time, then you will do a lot better in the long run.

About the Author

Click here for more information about short term forex trading, and to read about some of the more popular forex scalping systems.

By James Woolley

Many investors spend hours and hours looking at lots of different companies to find good quality stocks that they can add to their portfolio. However you could save yourself lots of time by simply picking one stock (the best stock you can find) and holding on to it for years and years. So is this a sound investment strategy?

Well I was giving this a lot of thought recently because I’ve been reading a few articles in the last few months talking about some of the so-called ISA millionaires. These are people in the UK who have turned their ISA into a six-figure sum. This is no mean feat because ISAs haven’t been around for that many years and the maximum amount you can contribute per year is currently £10,200, and has been a lot less than this.

Anyway the point is that some of the people that have reached this six-figure milestone did not do so by having well-balanced portfolios with solid-performing FTSE 100 companies, for instance. They did it by investing heavily in just one or two stocks that took off in a big way.

Now obviously this is a high-risk strategy. I’m sure others have tried it and lost most of their ISA capital because for every success story, there are lots more companies that will never become profitable companies, and ultimately go bankrupt.

However you can still make consistent profits by picking one stock and building an investment and trading strategy around that stock. You want to find a company that has a long track record of earnings and dividend growth, and is expected to continue growing for many years to come. If I was doing this, I would probably choose a company like Tesco because they are the biggest supermarket group in the UK and they are continually expanding both here in the UK and overseas.

Then you just need to think about when you will buy these shares. Ideally you should buy on any market dips because in the long run the share price should continue going upwards if earnings continue to grow. So you could buy more shares (or open a long position) when the RSI and stochastic indicators are below 20 or 30, and either hold on to them forever, or sell when these indicators are at overbought levels, for instance.

Plus if you want to boost your profits even further you should reinvest any dividend income straight back into the company (ideally when the stock is oversold). This will have a dramatic effect on your capital growth.

So the point is that you can make money trading just one stock. You can either go for broke by ploughing your cash into a smaller more speculative stock, or you can adopt the much more sensible and safer strategy of picking a big market-leading company and trading it, or accumulating more shares, every time it is oversold.

About the Author

Click here to read a review of Zecco, the online stock broker that offers free trades, and to read a full TradeKing review.

AUDUSD trades in the bottom of the price channel on 4-hour chart. A clear break below the channel bottom line will indicate that the uptrend from 0.9537 had completed at 1.0027 already, then the following downward move could bring price to 0.9600-0.9650 area. However, as long as the channel support holds, one more rise towards 1.0182 previous high is still possible, and a break above 0.9950 could signal resumption of uptrend.

Daily Forex Forecast

Faced with pressure from rising inflation and the whole of China’s attention to the coming November Consumer Price Index (CPI) that is speculated to peak when released on Saturday, China is starting to implement various price control measures and retailers in Kunming, Yunnan Province seem to be the first to face such temporary price ceilings.

A municipal government announcement released in Kunming on December 3 says the government will impose temporary price ceilings on various daily necessities. It requires five major retailers in the city including Walmart, Carrefour, Metro Cash & Carry International, ParknShop, and a domestic convenience store chain Yunnan Zhijia to report any price adjustments and give reasons for changes 48 hours in advance.

In addition to the five retailers, the announcement also listed other food, dairy products, cooking oil and beverage producers and requests them to apply for price alteration from the city’s Development and Reform Commission 10 business days in advance. Other daily necessities such as main food, vegetables, power and water also face price ceilings. The temporary price control that already started on December 3 will not stop until February 28, 2011.

China’s central government did not deny the possibility of price ceilings outside Yunnan Province. According to a report on China Business News on December 10, the central government said it would impose price ceilings in places when necessary to curb inflation.

The CBN report also cited words of Soul Lam from Aeon Stores (Hong Kong), to further confirm the rising government price intervention. As the managing director of the Hong Kong-based retailer who is engaged in General Merchandise Stores operation, Soul believes the government “has started to intervene” and it will “not allow prices to rise beyond a certain level.” Soul also compliments the price control as “a good thing for consumers,” and points out the necessity of such measures because although huge, the Chinese market is “not mature enough.”

Despite enjoying rapid economic growth during the past year, the Chinese government has been warned of the inflation risk and the surging CPI over the past 10 months. While a majority of economists expect November’s CPI will reach a local high and the stock market reacts to speculation of another bank interest rate raise, China receives mounting pressure to implement new monetary policies.

About the Author

This article was written for China-Briefing.com by Chris Devonshire-Ellis. Chris Devonshire-Ellis is also the founder of the China Expat website.

By Markus Heitkoetter

Fixed fractional money management is a money management technique used by many traders with great success. As with all money management strategies, there are pros and cons, and not all money management strategies are suitable for all traders. This article can help you decide whether or not fixed fractional money management is right for you.

Fixed fractional money management is one of the most common anti-martingale money management strategies that traders use. In fact, many money management strategies are based on fixed fractional money management. Fixed fractional money management involves risking a fixed percentage of equity on any given trade. Traders using fixed fractional money management select a percentage of equity between 0% and 1% to risk on a given trade. Stock traders, or traders trading larger accounts, typically use a smaller percentage, while Futures and Forex traders will often use a higher percentage to determine a fixed dollar amount per contract when trading.

This money management method requires that in order to increase from one to two contracts, a trader would need a profit that reflects the fraction of the account that is being traded. For example, if a trader used 1.0 of $10,000 he would trade only one contract until his account reached $20,000. When the account reached $20,000, the trader would be able to trade two contracts. This may seem like a daunting scenario, but look at what happens when you move from nine to ten contracts using the same proportion. Our trader would still require a $10,000 profit, but that $10,000 profit would come from nine contracts. This means that a trader would only need to average approximately $1,100 per contract in order to increase his position size.

Using this method will give you a slower increase of your position size early on, and unequal achievement as your account grows. Because of this, a trader has to make $10,000 trading one contract very early on in the process in order for this method to work. However, after a short time of increasing position sizes and making profits he would be able to trade nine contracts to make that same $10,000, but with much more ease. This is what is known as unequal achievement.

Another disadvantage of this method is that the drawdown will stay the same regardless of position size. It does not matter if you are trading a $10,000 or $100,000 account, or if you are trading one contract or one hundred contracts. If you can expect a certain drawdown per contract, it is going to be the same percentage across the board. Another disadvantage is that with smaller accounts it will take longer for this type of money management to be effective. One must also keep in mind while using this method, that the number of contracts in a larger account can fluctuate significantly. If you are trading a $100,000 account and using .05 as your fraction, you might find that as your account is growing and decreasing, the number of contracts is fluctuating all over the place.

Although fixed fractional money management is a very easy approach to money management, and although many traders in the Futures, Forex, and Stock markets find it very effective, there may be more effective ways to incorporate money management for the beginning trader.

About the Author

Markus Heitkoetter is the author of the international bestseller “The Complete Guide To Day Trading” and a professional day trading coach. For more free information on day trading visit his website http://www.rockwelltrading.com

RISK DISCLAIMER

Forex trading involves high risk. Before any trade, you should consider carefully the investment objectives and the level of risk. The data sent by mail is not necessarily real-time data or precise. Real-Forex is not liable for the losses resulting from the utilization of the data. Real-Forex (Finnocorp Trading Solution Ltd.) is not liable for losses or damages as a result of reliance on the information provided by e-mail or on the overall data, quotes, charts, signals buy / sell. It is hereby clarified that the investor must be aware of risks involved in trading in financial markets, which is a form of investment that may contain potential risks.

NZD/USD

Daily graph: http://www.real-forex.com/charts-daily/DEC2010/NZD_DAILY_201210.JPG

For several weeks, the pair is on a downtrend. During the last session, a support at 0.7399 was broken down. The pair clearly closed below that support, suggesting the continuation of the actual trend, meaning the creation of an opportunity to go “Short”. However, this opportunity requires a confirmation that may appear by the identification of a decreasing configuration on 1H scaled graph.

Potential trade

1H graph: http://www.real-forex.com/charts-daily/DEC2010/NZD_1H_201210.JPG

The required configuration should appear when the 1H support at 0.7351 will be broken down.

–        “Limit” order on “Short” position 10 pips below the mentioned 1H resistance, meaning: 0.7341.

–        “Stop Loss” order on the last peak reached: 0.7385

–        There is no visible support to set in order to close the trade, thus the 1^st degree to place a “Take Profit” order should be as deep as the potential profit, meaning 34 pips, which is 0.7317.

AUD/JPY

Daily graph: http://www.real-forex.com/charts-daily/DEC2010/AUD_JPY_DAILY_201210.JPG

A few sessions ago, the pair crossed the daily resistance at 82.85. As we already said, ordering a position immediately after the cross of a resistance is not recommended unless the resistance is tested and a technical correction followed the breach.

This is exactly what happened recently: a technical correction occurred until it reached the mentioned resistance. Actually, the opportunity for a “Long” trade seems open but a confirmation trough the identification of an increasing configuration on 1H graph is required.

Have a nice day

Real-Forex team.

By Markus Heitkoetter

Every trader should have a risk management plan in place before they start trading. A stop loss is a simple risk management tool that every trader should know and be able to use. There are several ways to implement stop losses into your daily trading. Depending on your goals and trading plan, not all stop loss methods might be the right one. Here we look at several stop loss methods so you can figure out which one is right for you.

A stop loss is a handy risk management tool that many traders use in their day to day trading. A stop loss helps to limit risk because it helps the trader see a limit that they have set for themselves. It is generally a number that a trader sets that tells them when they should exit a market. There are a few different ways to set this number.

The easiest way to use a stop loss is to use a fixed dollar amount. For example, a trader trading the E-mini S&P 500 might set a loss of $200 for his trading strategy. If one point on the S&P 500 was equal to $50, then this trader would know to exit the market after four losses. Four losses would mean a $200 loss on the overall account, and when the stop loss was reached the trader would know to stop trading and evaluate.

Another way to set a stop loss is to set a percentage of price as your loss. This is very popular with stock traders. Here is how it works: A stock trader might set a 10% stop loss on a given stock. Let’s say this particular trader buys a stock at $100. Because they are using a 10% stop loss, their stop is set at $90. Now they will look to participate in a move. If they are wrong, they know that they are going to get out with a 10% loss.

Other traders prefer to set technical stops. This kind of stop can be based on support or resistance patterns in the market. Imagine you are looking for a market to move up and you see there is a support level. Using a technical stop would mean that you would place your stop just below that support level. This kind of stop would allow you to participate in the trade and move to the upside. On the other hand, if you were expecting the market to drop, you would place your stop just above the resistance level.

The final method of setting stop losses was invented by Markus Heitkoetter, CEO of Rockwell Trading. In this method, traders place stops based on percentage of volatility. This method is very popular with traders who look at the average daily range of a market. A trader using this kind of stop will look at the average daily range, take the seven day average between the high and low, the session high band low, and use these numbers to determine the stop loss.

Stop losses are one of the best risk management tools a trader can incorporate into their trading. Not all stop loss methods might be right for every trader, but every trader should find a stop loss method that works for them. If you would like to learn more about stop losses and trading, please go to http://www.RockwellTrading.com.

About the Author

Markus Heitkoetter is the author of the international bestseller “The Complete Guide To Day Trading” and a professional day trading coach. For more free information on day trading visit his website http://www.rockwelltrading.com

By Markus Heitkoetter

Every trader should have a risk management plan in place before they start trading. Setting a profit target is a simple risk management tool that every trader should incorporate. There are several ways to implement profit targets into your daily trading. Depending on your goals and trading plan, not all profit targets will be the right one. Here we look at several ways to set profit targets so you can figure out which one is right for you.

Profit targets are a risk management method that many traders use. While setting profit targets can be a more conservative risk management method, many traders enjoy using profit targets because they are easy to implement, and they help a trader to remain disciplined in their trading. There are several ways to set profit targets and incorporate them into your daily trading.

Possibly the simplest way to set profit targets is to set a dollar amount. A trader would set a profit target as a dollar amount and incorporate this amount into their trading strategy. Let’s say we are trading the E-mini S&P 500, and we decide to set a $150 profit target for ourselves. Since one point is worth $50, we would get out of the market once we had had three winning trades in a row, or once our trading profits (with losses and wins taken into consideration) had reached $150. This profit target helps us get out of the market with a conservative profit, and makes sure we do not expose ourselves to unnecessary risk or potentially giving back profits.

Traders can also set profit targets by using a percentage price. Setting a percent price, however, also means that you would need to set a stop loss. If you are unfamiliar with stop losses, this method might not be the best for you. A swing trader who sets a percentage price might set their stop loss at 2% and their profit target at 3% of price. This means that the trader would exit the market if their loss was reached and exit the market if their profit target was reached. Setting profit targets this way is beneficial because it helps the trader to know when to close a position so that it does not go against them if they hang onto it for too long.

Profit targets can also be set based on support and resistance in a market. If you were to see the market moving up and you expected to encounter resistance in a certain area, you could set your profit target just below the resistance. This method would allow you to take profits out of the market as the market moved up to resistance.

A trader could also implement a trailing stop to set their profit target. This method has become very popular with many traders. A trailing stop adjusts based on moves in the market. A trader adjusts the stop loss with the trailing market in order to allow a stop to move higher when the market is moving up, and lower when the market is moving down. This approach allows a trader to lock in profits once that trailing stop is hit.

Profit targets are a great way to manage your risk in trading. Many traders feel that if they set a profit target they will be missing out on potential profits or opportunities. In some cases, perhaps this could be the result of setting a profit target. However, more often than not a profit target will save a trader from staying in a market too long and losing profits they had already accumulated. I highly recommend profit targets to any trader who is serious about making money with trading.

About the Author

Markus Heitkoetter is the author of the international bestseller “The Complete Guide To Day Trading” and a professional day trading coach. For more free information on day trading visit his website http://www.rockwelltrading.com