Support and Resistance line

Support and Resistance line

Support line can be thought of as a floor for the price while resistance can be thought of as the ceiling for the price. When the price breaks through a resistance, that level becomes the new support level. The reverse is true when the price breaks through a support level.

The best use of support and resistance is during trend trading. If the trend is up, you want to go long at support and take profit at resistance. If the trend is down, you want to go short at resistance and take profit at support.

Support and resistance levels are sometimes not exact price levels. Many times, they will be a small range of prices. Once the price clearly breaks past that range of prices, support or resistance is to be considered broken.

Support and resistance should be used as reference points when looking at a forex chart and trying to make a decision. They can give you a good idea of where to put your stop loss or take profit orders.

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Chart Pattern

line chart

A line chart is the most basic and simplest type of stock charts that are used in technical analysis. The line chart is also called a close-only chart as it plots the closing price of the underlying security, with a line connecting the dots formed by the close price. In a line chart the price data for the underlying security is plotted on a graph with the time plotted from left to right along the horizontal axis, or the x-axis and price levels plotted from the bottom up along the vertical axis, or the y-axis. 

The price data used in line charts is usually the close price of the underlying security. The uncluttered simplicity of the line chart is its greatest strength as it provides a clean, easily recognizable, visual display of the price movement. This makes it an ideal tool for use in identifying the dominant support and resistance levels, trend lines, and certain chart patterns.

Bar chart

Bar charts are one of the most popular forms of stock charts and are probably the most widely used charts. Bar charts are drawn on a graph that plots time on the horizontal axis and price levels on the vertical axis. The chart consists of a series of vertical bars that indicate various price data for each time-frame on the chart. This data can be either the open price, the high price, the low price and the close price, making it an OHLC bar chart, or the high price, the low price and the close price, making it an HLC bar chart. The height of each OHLC and HLC bar indicates the price range for that period with the high at the top of the bar and the low at the bottom of the bar. Each OHLC and HLC bar has a small horizontal tick to the right of the bar to indicate the close price for that period. An OHLC bar will also have a small horizontal tick to the left of the bar to indicate the open price for that period.

The extra information is one of the reasons why the OHLC charts are more popular than HLC charts. In addition, some charting applications use colors to indicate bullish or bearishness of a bar in relation to the close of the previous bar. This makes the OHLC bar chart quite similar to the candlestick chart, except that the OHLC chart does not indicate bullishness or bearishness of the period of one bar as clearly as the candlestick chart (the color of an OHLC bar is always in relation to the close of the pervious bar rather than the open and close of the current bar).

Point and Figure Charts

Point and Figure (P&F) charts date back to at least 1880's and differ from other stock charts as it does not plot price movement from left to right within fixed time intervals. It also does not plot the volume traded. Instead it plots unidirectional price movements in one vertical column and moves to the next column when the price changes direction. It represent increases in price by plotting X's in the column and decreases in price by plotting O's. Each X and O represents a box of a set size or price amount. This box size determines how far the price must move before another X or O is added to the chart, depending on the direction of the price movement. Thus if the box sixe is set at 15, the price must move 15 points above the previous box before the next X or O is plotted. Any movement below 15 is ignored. For this reason, very little plotting occurs during stagnant market conditions while a considerable amount of plotting may occur during volatile market conditions.

The chart also has a box reversal amount that determines how many boxes must occur in the opposite direction before it is seen as a reversal. Only once the price is seen as having reversed is a new column started. In a 3 box reversal requires the price to move three boxes (of 45 points if each box represents 15 points) against the current direction before it is seen as a reversal.

Candlestick Charts

Japanese candlestick charts form the basis of the oldest form of technical analysis. They were developed in the 17th century by a Japanese rice trader named Homma. Candlestick charts provide the same information as OHLC bar charts, namely open price, high price, low price and close price, however, candlestick charting also provide a visual indication of market psychology, market sentiment, and potential weakness, making it a rather valuable trading tool.

Candlesticks indicate a bullish up bar, when the closing price is higher than the opening price, using a light color such as white or green, and a bearish down bar, when the closing price is lower than the opening price, using a darker color such as black or red for the real body of the candlestick. Thus, on a green candlestick, the close price will be at the top of the candlestick real body and the open price at the bottom as the close price is higher than the open price; conversely on a red bar the close price will be at the bottom of the candlestick real body and the open price at the top as the close price is lower than the open price.

 For both a bullish and a bearish candlestick, the high price and the low and the low price for the session will be indicated by the top and bottom of the thin vertical line above and below the real body. This vertical line is called the shadow or the wick.

The shape and color of a candlestick can change several times during its formation. Therefore the trader must wait for the candlestick to be formed completely at the end of the time-frame to analyze the candlestick, forcing the trader to wait for the bar to close.

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Technical Theory

Technical Theory

Fundamental analysis is based upon the traditional study of supply and demand factors that cause prices to rise or fall. Such factors include drought, flood, war, politics, exchange rates, inflation and deflation. The previous section on supply & demand and stocks/use ratios are methods used by fundamentalists to arrive at an estimate of the equilibrium market price of a commodity over time in order to determine if the current market price is over or undervalued.

Technical or chart analysis, by contrast, is based upon the study of the market action itself. While fundamental analysis studies the reasons or causes for prices going up or down, technical analysis studies the effect of the price movement itself. Technical analysts claim that markets do trend and that by charting market prices you can control commodity price risk management.

 They further claim that by combining the use of price charts with appropriate marketing tools and pricing strategies can have a major positive impact on your profitability and, therefore, the long term survival of your business. Charting can be used by itself with no fundamental input, or in conjunction with fundamental information. You will find that as you become more skilled in charting and technical analysis, that the illusion of randomness in the commodity market will gradually disappear. This will lead to more confidence in making those very crucial marketing decisions.

The ability to make commodity price forecasts is only the first step in the price decision making process. The second, and often more difficult step, is market timing. Since commodity futures markets are so highly leveraged, minor price moves can have a dramatic impact on trading performance.
Therefore, the precise timing of entry and exit points is an indispensable aspect of any market commitment. Timing is everything when dealing in the commodities markets, and timing is almost purely technical in nature. This is where a practical application of charting principles becomes absolutely essential in the price forecasting and risk management process.

Basic assumptions of which technical analysis

1. The futures market discounts everything.

The technician believes that the price posted on the board of a commodity exchange at any given time is the intrinsic value of the commodity based upon the fundamental factors affecting the supply and demand of the product. Therefore, if the fundamentals are already reflected in the price, market action (charts- price, volume, open interest) is all that is needed to be studied to forecast future price direction. Although not knowing the specifics of the fundamental news, the technician indirectly studies the fundamentals by studying the charts which reflect the fundamentals of the marketplace.

2. Prices move in trends

Prices can move in one of three directions, up, down or sideways. Once a trend in any of these directions is in effect it usually will persist. The market trend is simply the direction of market prices, a concept which is absolutely essential to the success of technical analysis. Identifying trends is quite simple; a price chart will usually indicate the prevailing trend as characterized by a series of waves with obvious peaks and troughs. It is the direction of these peaks and troughs that constitutes the market trend.

3. History repeats itself

Technical analysis includes the psychology of the market place. Patterns of human behavior have been identified and categorized for several hundred years and are repetitive in nature. The repetitive nature of the marketplace is illustrated by specific chart patterns which will indicate a continuation of or change in trend.

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Calculate BSE SENSEX

How to calculate BSE SENSEX?

The Sensex has a very important function. The Sensex is supposed to be an indicator of the stocks in the BSE. It is supposed to show whether the stocks are generally going up, or generally going down. 

To show this accurately, the Sensex is calculated taking into consideration stock prices of 30 different BSE listed companies. It is calculated using the “free-float market capitalization” method. This is a world wide accepted method as one of the best methods for calculating a stock market index. 

Please note: The method used for calculating the Sensex and the 30 companies that are taken into consideration are changed from time to time. This is done to make the Sensex an accurate index and so that it represents the BSE stocks properly. 

To really understand how the Sensex is calculated, you simply need to understand what the term “free-float market capitalization” means. (As we said earlier, the Sensex is calculated on basis of the “free-float market capitalization” method) But, before we understand what “free-float market capitalization” means, you first need to understand what “market capitalization” means.

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market capitalization

You probably think that you have never heard of the term “market capitalization” before. You have! When you are talking about “mid-cap”, “small-cap” and “large-cap” stocks, you are talking about market capitalization!

Market cap or market capitalization is simply the worth of a company in terms of it’s shares! To put it in a simple way, if you were to buy all the shares of a particular company, what is the amount you would have to pay? That amount is called the “market capitalization”! 

To calculate the market cap of a particular company, simply multiply the “current share price” by the “number of shares issued by the company”! Just to give you an idea, ONGC, has a market cap of “Rs.170,705.21 Cr” (when this article was written)

Depending on the value of the market cap, the company will either be a “mid-cap” or “large-cap” or “small-cap” company! Now the question is, how do YOU calculate the market cap of a particular company? You don’t! Just go to a website like MoneyControl.com and look up the company whose market cap you are interested in finding out! The figure in front of “Mkt. Cap” will be the market cap value.

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The Sensex & The Nifty

What are the Sensex & the Nifty?


The Sensex is an "index". What is an index? An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down.

The Sensex is an indicator of all the major companies of the BSE.

The Nifty is an indicator of all the major companies of the NSE.

If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down.

Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of the NSE.

Just in case you are confused, the BSE, is the Bombay Stock Exchange and the NSE is the National Stock Exchange. The BSE is situated at Bombay and the NSE is situated at Delhi. These are the major stock exchanges in the country. There are other stock exchanges like the Calcutta Stock Exchange etc. but they are not as popular as the BSE and the NSE.Most of the stock trading in the country is done though the BSE & the NSE.

Besides Sensex and the Nifty there are many other indexes. There is an index that gives you an idea about whether the mid-cap stocks go up and down. This is called the “BSE Mid-cap Index”. There are many other types of indexes.

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Trading strategies

Types of currency trading strategies.

Currency trading strategies can fall into a couple of basic categories. The main reason is normally the driving force behind the signals that this strategies produce. The type of currency trading strategy that you choose is an entirely personal thing, but should be based upon comfort, and the overall trading results.

One type of currency trading strategy is based completely on the differential of two countries interest rates. What is meant by this is that if the interest rate of Great Britain happens to be 2%, and the interest rate of Japan is 0.5%, the trader would by British Pounds, and sell the Japanese Yen. The thinking behind this is that money tends to flow where it is treated better. With a higher interest rate and Great Britain, it should follow that there will be more investment in that country. As investors flood into the UK, it stands to reason that they will be buying the British Pound.

Another type currency trading strategies based upon the fundamentals of both countries. And while this somewhat ties in with the differential of interest rate type of strategy, it does take into account a much larger picture of economic information. The idea is to buying the currency of the country that is more likely to raise interest rates in the future that another. If you find that the economic numbers out of a particular country are better than another, you will apply that currency and sell the other one. Fundamental trading can be a bit tricky however, as it generally doesn't have a set entry or exit point.

One of the most common types of trading strategies in the currency market are systems that are based on technical analysis. Under this heading, there are literally hundreds and thousands of systems to choose from. These systems tend to incorporate a technical indicator, or group of them, with simple price action. They can be as basic as systems that incorporate support and resistance with trend lines, or a bit more complicated such as a system that incorporates the ADX, MACD and the RSI, along with price action and perhaps moving average or two.

The simple truth is that there is no "one size fits all" type of trading system out there for the currency trader to use. You simply have to try and figure out what works best for you personally. While it takes a little bit of trial and error, and diligent record-keeping, going through the process of finding the perfect system for your situation is the foundation for becoming a profitable trader.

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Day trading

Trading tips for successful day trading.

The following is a short list of trading tips that can help you stay focused and on a profitable path while day trading.

• Formulate a trading plan and stick to it. You should know all of your positions, the entries, possible exit targets, and where your stops are going to be before you place a trade online. This helps take the emotion out of the situation.
• Know the direction of the overall trend. The successful trader tends to follow the trend at all times. If you have the weight of the market behind you, it is much easier to make profits.
• Protect your trading capital. By trading the correct position size relative to the size of your portfolio, you can keep from having disastrous losses. If you are swinging for the fences on every trade, you are eventually going to strike out. Another way to protect your trading capital is to let a loss go. If you have a losing day trade, never chase it. This almost always leads to compounding losses.
• Do not be greedy. Figure out your exit before getting into the trade, and take your profits when they are offered.
• Leave your emotions at the door. By leaving your emotions out of the equation, you can save yourself for making serious and costly mistakes.
• Don't be a copycat. Do not try to follow somebody else's trading, as what works for them probably won't work for you. Do your own work, and you will come out ahead in the long run.
• Keep a journal. You should write detailed notes on every trade you take. Write down the technical setup, the fundamentals set up, and any thoughts or emotions that you had while placing trades.
• Confusion is a signal as well. When confused, simply stay out of the market. There is no reason to press the issue when you don't understand what is going on. It is at this point where trading simply becomes gambling, and gambling is not we are here to do.
• Never trade out of boredom. Trading out of boredom can be in account killer. Many traders will place trades just to place a trade, with no more thought or strategy than the knowledge that it's a possibility they may make money if they place trade. Again, this is simply gambling and not trading.

You are responsible for the way your day trading business operates. It is you that has to take responsibility for the choices that are made in your trading account. By keeping the short list of rules in mind, you can increase the odds that your choices are at the very least made with logic and rational thinking. Breaking these rules are some of the quickest ways to lose money in the markets.

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Article for Day Trading, Tips and Online Trading

1.Currency Trading Strategies
Currency trading strategies can fall into a couple of basic categories. The main reason is normally the driving force behind the signals that this strategies produce. The type of currency trading strategy........Currency Trading Strategies

2.Trading Tips
The following is a short list of trading tips that can help you stay focused and on a profitable path while day trading. . . . Trading tips

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Forex Trading

Forex Trading

The forex (foreign currency exchange) market is the largest and most liquid financial market in the world. The forex market unlike stock markets is an over-the-counter market with no central exchange and clearing house where orders are matched.

Traditionally forex trading  has not been popular with retail traders/investors (traders takes shorter term positions than investors) because forex market was only opened to Hedge Funds and was not accessible to retail traders like us. Only in recent years that forex trading is opened to retail traders. Comparatively stock trading has been around for much longer for retail investors. Recent advancement in computer and trading technologies has enabled low commission and easy access to retail traders to trade stock or foreign currency exchange from almost anywhere in the world with internet access. Easy access and low commission has tremendously increased the odds of winning for retail traders, both in stocks and forex. Which of the two is a better option for a trader? The comparisons of retail stock trading and retail forex trading are as follows;

Nature of the Instrument

The nature of the items being bought and sold between forex trading and stocks trading are different. In stocks trading, a trader is buying or selling a share in a specific company in a country. There are many different stock markets in the world. Many factors determine the rise or fall of a stock price. Refer to my article in under stock section to find more information about the factors that affect stock prices. Forex trading involves buying or selling of currency pairs. In a transaction, a trader buys a currency from one country, and sells the currency from another country. Therefore the term “exchange”. The trader is hoping that the value of the currency that he buys will rise with respect to the value of the currency that he sells. In essence, a forex trader is betting on the economic prospect (or at least her monetary policy) of one country against another country.

Market Size & Liquidity

Forex market is the largest market in the world. With daily transactions of over US$4 trillion, it dwarfs the stock markets. While there are thousands of different stocks in the stock markets, there are only a few currency pairs in the forex market. Therefore, forex trading is less prone to price manipulation by big players than stock trading. Huge market volume also means that the currency pairs enjoy greater liquidity than stocks. A forex trader can enter and exit the market easily. Stocks comparatively is less liquid, a trader may find problem exiting the market especially during major bad news. This is worse especially for small-cap stocks. Also due to its huge liquidity of forex market, forex traders can enjoy better price spread as compared to stock traders.

Trading Hours & Its Disadvantage to Retail Stock Traders

Forex market opens 24-hour while US stock market opens daily from 930am EST to 4pm EST. This means that Forex traders can choose to trade any hours while stock traders are limited to 930am EST to 4pm EST. One significant disadvantage of retail stock traders is that the stock markets are only opened to market makers during pre-market hours (8:30am – 9:20am EST) and post-market hours (4:30pm – 6:30pm EST). And it is during these pre-market and post-markets hours that most companies release the earnings results that would have great impact on the stock prices. This means that the retails traders (many of us) could only watch the price rise or drop during these hours. Besides, stop order would not be honored during this times. The forex traders do not suffer this significant disadvantage. Also, a stock trader may supplement his/her trading with forex trading outside the stock trading hours.

Affordability

In order to trade stocks, a trader needs to have quite a significant amount of capital in his account, at least a few tens of thousands in general. However, a forex trader can start trading with an account of only a few hundreds dollars. This is because forex trading allows for higher leverage. A forex trader could obtain larger transaction compared to stock market. Some forex brokers offers 100:1, 200:1 or 400:1. A leverage of 100:1 means that a US$1k in account could obtain a 100 times transaction value at US$100k. There is no interest charge for the leveraged money. Stock trading generally allows for not more than 2 times leverage in margin trading. There are interest charges associated with margin trading.

Data Transparency & Analysis Overload

There are thousands of different stocks in different industries. trader needs to research many stocks and picks the best few to trade. There are many factors that affect the stock prices. There are much more factors that may affects stock price than foreign currency exchange rates. The forex traders therefore can focus on few currency pairs to trade. On top of that, most data or news affecting currency exchange rate are announced officially, scheduled and in a transparent manner. Retail forex traders therefore have better chances of success than retail stock traders.

Bear/Bull Stock Market Conditions

Forex traders can trade in both way buying or selling currency pairs without any restrictions. However, stock traders have more constraints to trade and profit in bear market condition. There are more restrictions and costs associated with stock short selling. In a bull market when the economy is doing well, stock traders have a high chance of profitability if they buy stock first then sell it later. Savvy forex traders however, could operate in all market conditions.

Trending Nature of Currency

Major currencies are influenced by national financial policies and macro trends This national financial policies and macro trends tend to last long in a certain direction, either in monetary expansionary (rate cutting) or monetary contractionary cycle (rate hiking cycle). Stock prices however tend to fluctuate up and down due to many factors, many of these factors are micro and specific to the stocks. Therefore forex traders can better exploit the trends in foreign currency markets that stock traders in stock markets.

Regulation

Generally, most major stock markets are better regulated than forex markets. Therefore, traders need to be aware of this difference to stock markets. Fortunately, there are however many reputable forex brokers in the market. With prudence and proper research, it is not difficult to find a suitable reliable forex brokers.
Based on the above few points, forex trading seems to be a better trading option than stock trading, especially during these uncertainties in the global economy. During bull market condition, stock trading could be a viable alternative. A stock trader should definitely seriously consider supplementing their trading with forex trading. Forex trading enables a stock trader to exploit any opportunity arises during non stock trading hours, by trading in forex trading. Forex trading would also enable the stock traders to understand a more complete big picture of world economies operations and further enhance their stock trading skills.

Based on the above few points, forex trading seems to be a better trading option than stock trading, especially during these uncertainties in the global economy. During bull market condition, stock trading could be a viable alternative. A stock trader should definitely seriously consider supplementing their trading with forex trading. Forex trading enables a stock trader to exploit any opportunity arises during non stock trading hours, by trading in forex trading. Forex trading would also enable the stock traders to understand a more complete big picture of world economies operations and further enhance their stock trading skills.

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Commodity

Commodities

Commodities is simply a label applied to items that are produced to satisfy human wants or needs. A commodity can be bought or sold through futures contracts on specific exchanges. An exchange will usually specify a minimum quality and quantity that can be bought.

People like to trade commodities as they use them in everyday life. The price direction of commodities can sometimes be easier to predict than shares in companies.

Companies will also trade in commodities. A typical example of this is an airline betting that crude oil prices will rise. By making money if crude oil rises, they can offset any loses the company would make by spending on petrol during flights. This is known as hedging, and means the airline company can apply a set cost to crude oil, when designing future business plans.

Top 10 traded commodities (in order of popularity) ;

1. Crude Oil
2. Coffee
3. Natural Gas
4. Gold
5. Brent Oil
6. Silver
7. Sugar
8. Corn
9. Wheat
10. Cotton

Gold

Many people like the idea of buying gold as the price never seems to drop. Due to the collapse of several banks over the past decade, gold is now also seen as a safer investment. As you can see below, the price of gold has generally risen over the last 20 years.

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The chart clearly shows that investing in gold over the last 20 years would have provided a better rate of interest than leaving money in a savings account.

Why Invest in Gold?

Gold has always seemed to play a pretty big role in world history. Many cities exist or don't exist today because of the discovery of gold or because of the greed inspired by gold.
At one point in time all the currency in the United States was backed up by gold.

Investing in gold and silver is typically done as a safe-haven against political, economic, social, currency-based or other crisis.
Typically when the economy is struggling the price of gold and other precious metals goes up dramatically.
How to Invest in Gold?

There are different approaches to take. You should make sure that the approach you take is right for you and fits your comfort level. Some possibilities include:
Directly through gold coins or gold bullion investing
Indirectly through investing in gold options, investing in gold stocks, gold exchange traded funds, accounts, or certificates

Historic Gold Investing Prices

I made a couple of charts for you to reference to help understand where the price of gold has been in the past.

Gold Prices: Last 110 Years

Gold Prices: Last 20 Years

Oil

Crude oil is one of the most talked about traded commodities as it has the widest impact on society. It affects many sectors such as the transport sector, the energy sector and of course the oil & gas sector! As a commodity, crude oil is normally purchased in batches of 1,000 barrels.

Crude oil can be invested in directly through commodities and also indirectly through oil ETF’s and stock in individual oil companies.

As you can see by the chart below, demand currently heavily outweighs supply of crude oil, meaning the price of oil has risen sharply over recent times.

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Technical Analysis

What Is Technical Analysis? 

Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

Just as there are many investment styles on the fundamental side, there are also many different types of technical traders. Some rely on chart patterns, others use technical indicators and oscillators, and most use some combination of the two. In any case, technical analysts' exclusive use of historical price and volume data is what separates them from their fundamental counterparts. Unlike fundamental analysts, technical analysts don't care whether a stock is undervalued - the only thing that matters is a security's past trading data and what information this data can provide about where the security might move in the future.

The field of technical analysis is based on three assumptions:

1. The market discounts everything.
2. Price moves in trends.
3. History tends to repeat itself.

1. The Market Discounts Everything 

A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysis assumes that, at any given time, a stock's price reflects everything that has or could affect the company - including fundamental factors. Technical analysts believe that the company's fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market.

2. Price Moves in Trends 

In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption.

3. History Tends To Repeat Itself 

Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.

Not Just for Stocks 

Technical analysis can be used on any security with historical trading data. This includes stocks, futures and commodities, fixed-income securities, forex, etc. In this tutorial, we'll usually analyze stocks in our examples, but keep in mind that these concepts can be applied to any type of security. In fact, technical analysis is more frequently associated with commodities and forex, where the participants are predominantly traders.

Now that you understand the philosophy behind technical analysis, we'll get into explaining how it really works. One of the best ways to understand what technical analysis is (and is not) is to compare it to fundamental analysis. We'll do this in the next section. 

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Introduction of buying Shares

Introduction

Before beginning your step by step guide to becoming a trader it is worth noting that becoming a trader often takes time depending a variety of factors such as how quickly you learn trading strategies to how long your brokerage account takes to set up etc. Patience is required but the rewards of making consistent profits far outweigh the effort required to learn how to trade! If your not 100% sure about becoming a stock market trader then perhaps you should try the idea out with a free practice trading account first.

1. Know the basics

So your thinking about trading shares in order to make some big bucks…

First of all you need to obtain a basic knowledge of shares and the stock market. It goes without saying that without knowing the aspects of a stock or the concept of how the stock market works its impossible to know what your doing. You can gain all the basic knowledge of the stock market in the basics section of the website.

These are the key concepts that need to be learnt before moving onto learning to trade;

1. Learn the aspects a share has e.g. dividends, bid/ask price, its chart etc.
2. Know what information (software/websites) is required to buy shares.
3. Learn how the stock market works
4. Know of the risk involved with trading shares

Its important to have this knowledge before paying money for a trading course (step 4) to enable you to fully understand the concepts being taught. By not knowing any basic stock market information, parts of courses could easily fly by you, meaning that you will struggle to understand the information that you will have paid for!

2. Open a practice account

Opening a practice account links with step 1 as it will help you grasp the concept of buying and selling shares in the stock market. Plus500 makes it really easy to get to grips with buying and selling shares.

The best thing about practice trading is that you can experiment with strategies and not lose any money! This is because when trading you are using ‘pretend’ cash balances which you can edit to represent how much cash you would actually want to trade with. Practice accounts also have free charting tools which will enable you to get used to technical analysis.

However as practice trading has many perks, I do have a word of warning, whatever you do don’t think that successful practice trading, without proper education, qualifies you to trade on the stock market. People can often get lucky by e.g. buying in a bull market, making money, and thinking this makes them a competent trader. Step 2 is just to help you grasp the concept of trading shares and hopefully enable you to realise how much money can be made from trading on the stock market.

3. Subscribe to a news site

By subscribing to a news site you will receive news before, after and sometimes (depending on the website) during a market day. Taking in news from the city will help you understand what economic factors influence the direction of the stock market. The morning report especially is helpful in predicting whether the market will start up or down, which consequently will enable you to make better (more informed) trading decisions.

News sites often come hand in hand with practice account, where you will find one you will find the other. If you register to one of our recommended practice accounts then you will have the option to receive commentary of the stock market via e-mail.

4. Educate yourself

Step 4 is the most important stage before trading shares.

 In relation to progressing through our step by step guide, paying for a course shows a huge commitment to becoming a trader, a commitment you need to take if your serious about making substantial money from the stock market.

5. Open a brokerage account

You should open a brokerage account soon after gaining a solid education of the stock market as this will help keep your momentum going towards becoming a trader. It is important to pick the right brokerage account for your style of trading. For example some accounts charge inactivity fees which would be bad for position traders (traders who trade rarely) whilst some have expensive trade fees which would represent a bad deal for day traders (traders who make several trades a day).

6. Obtain charting software

Charting software is essential when making trading decisions. Charting software provides accurate fundamental and extensive technical analysis which greatly improves the chances of making successful trading decisions.

Charting software will require a monthly payment which can put people off using it and using free charting websites instead. However, having solid and extensive information from charting software, before trading, will easily improve your stock picking decisions and easily justify paying for charting software.

7. Subscribe to a quality newsletter

Step 7 is not an essential step…some people like to make trading decisions by themselves however some people find newsletters with tips in give them more confidence to place trades.

However as well as providing tips, newsletters also provide useful insights into companies and the stock market.

8. Start practice trading

Unlike step 2, where practice trading is recommenced to help grasp concepts, this practice trading step is used to simulate the trading strategies you have learned, and will use when trading for real. It is essential that you become successful at practice trading over a period of time (8 weeks suggested) before trading for real. This is to make sure your strategies work and that your initial rookie mistakes (it happens to all of us!) do not dent your real cash balance!

Make sure you consistently make profits before using your own hard earned money to trade with.

9. Start real trading

If the 8 steps have been followed and all has gone well then it is time to start real trading!

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Forex Market Place

Forex Market

The Forex market is an international over-the-counter market (OTC). It means that it is a decentralized, self-regulated market with no central exchange or clearing house, unlike stocks and futures markets. This structure eliminates fees for exchange and clearing, thereby reducing transaction costs.

The Forex OTC market is formed by different participants – with varying needs and interests – that trade directly with each other. These participants can be divided in two groups: the interbank market and the retail market.
The Interbank Market

The interbank market designates Forex transactions that occur between central banks, commercial banks and financial institutions.

    Central Banks 

National central banks (such as the US Fed and the ECB) play an important role in the Forex market. As principal monetary authority, their role consists in achieving price stability and economic growth. To do so, they regulate the entire money supply in the economy by setting interest rates and reserve requirements. They also manage the country's foreign exchange reserves that they can use in order to influence market conditions and exchange rates.

    Commercial Banks 

Commercial banks (such as Deutsche Bank and Barclays) provide liquidity to the Forex market due to the trading volume they handle every day. Some of this trading represents foreign currency conversions on behalf of customers' needs while some is carried out by the banks' proprietary trading desk for speculative purpose.

    Financial Institutions 

 Financial institutions such as money managers, investment funds, pension funds and brokerage companies trade foreign currencies as part of their obligations to seek the best investment opportunities for their clients. For example, a manager of an international equity portfolio will have to engage in currency trading in order to buy and sell foreign stocks.

The Retail Market

The retail market designates transactions made by smaller speculators and investors. These transactions are executed through Forex brokers who act as a mediator between the retail market and the interbank market. The participants of the retail market are hedge funds, corporations and individuals.

    Hedge Funds - Hedge funds are private investment funds that speculate in various assets classes using leverage. Macro Hedge Funds pursue trading opportunities in the Forex Market. They design and execute trades after conducting a macroeconomic analysis that reviews the challenges affecting a country and its currency. Due to their large amounts of liquidity and their aggressive strategies, they are a major contributor to the dynamic of Forex Market.

    Corporations - They represent the companies that are engaged in import/export activities with foreign counterparts. Their primary business requires them to purchase and sell foreign currencies in exchange for goods, exposing them to currency risks. Through the Forex market, they convert currencies and hedge themselves against future fluctuations.

    Individuals - Individual traders or investors trade Forex on their own capital in order to profit from speculation on future exchange rates. They mainly operate through Forex platforms that offer tight spreads, immediate execution and highly leveraged margin accounts.

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process of buying shares

What is the actual process to buy shares?

1. First of all you need to deposit some funds in a brokerage account.

2. You then use your brokerage account to obtain a quote for the stock that you are interested in (you can do this online or over the phone), they then send a request of to the market maker.

3. The market maker (firms that quote the buy an sell price of a stock) then issues you with a buy (ask) price and sell (bid) price for your chosen share.

Note: The difference between the bid and ask price quotes is where they make their money.

4. You then send an order to the market, from your brokerage account, detailing the stock you want to buy, how many shares you want of that stock and what price you are willing to pay for the stock.

5. If the price you set meets the quote the market maker has set then you will enter the trade!

Note: You will be charged a fee of around £8-12 UK and $2-8 US depending on which broker you use, this fee covers the purchase and sale of a share. Also, whether you buy 1, 100, or 100,000 shares, you will get charged the same fee. Brokers charge you per transaction and not by how many shares you buy.

Why buy shares?

1. Financial returns

Investors can realistically make a 50%+ return a year on their capital, this compared to the interest rate offered in banks (often around 1-5%), is a massive difference.

Example

Obviously a 50%+ return would require a good education in trading stocks, but providing you had this, here is a financial example.

- You have $20,000
- 3% interest from a regular bank savings account would give you $600 a year.
- A 50% return from the stock market would give you $10,000 a year.

Investing in the stock market is often a major reason why the rich are rich, they can grow their money faster than other people.

2. Beating recession

You can make money when the market is going down! This is achieved by a marvelous concept called shorting. You certainly can’t make money with property when the market is in recession.

3.The lifestyle

You can work for yourself at home! No pressure from the boss, no orders around and you don’t have to deal with anyone else’s problems! That’s 4 reasons right there…

4. Tax advantages

When trading shares (UK) you are given a £9,600 capital gain tax allowance so you can make up to £9,600 without paying tax. This allowance, compared with the £6,035 income tax allowance, means you can earn an extra £3,565 tax free.

Still cant decide whether trading shares is a good idea? Here are a few extra reasons to help you decide…

1. Take the risk out of trading with stop losses
2. Earn a salary from stocks with dividend payments

To learn the steps needed to be taken to trade shares successfully, view the step by step guide to trading shares.

How old to buy shares?

There is an age limit of 18 to trade on the stock market, at least you need to be 18 to open your own brokerage account. There are ways to get a parent to open an account and you then trade with their account, this is where the parent is the custodian of the account (they get to see how well their child is doing and get monitor their trades!) and to do this the child must be at least 13.

Other options

If you are under 18 and really want to find out what trading shares is about then I recommended you open a fantasy trading account, these accounts are free to open and you use virtual money to trade with meaning there is no financial risk involved.

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Type of Traders

The difference between traders and investors?

 Simple, traders buy stock for the short term and investors buy stock for the long term. Broadly speaking, there are four main types of trading, day trading, swing trading, position trading and investing.

Day trading is when shares are bought and sold within 1 day, this can produce big profits but is acknowledged as one the riskiest forms of trading shares.

Swing Trading is when shares are kept between 2-14 days and the idea is to follow the current upward or downward trend, like day trading this can be very profitable.

Position trading is where shares are kept for 1-6 months, this style is used to follow the long term trends of stocks. This style is often used by people in full time jobs who can’t devote regular time to managing their stock market portfolio.

Investing is where shares are kept for 6 months or more, this style often involves investing in young or highly profitable companies in order to capture their growth with the investment or to receive their dividends.

It is important to determine what type of trader you are in order to select strategies that suit your style of trading. Stock market courses will help you develop trading strategies.

The amount of time you have to give to trading shares will often determine your style of trading. For example if you want to trade shares and still work full time then you will not be suited to day trading.

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What are economic indicators?

What are economic indicators?

Economic indicators are the key statistics of the economy that reveal the direction the economy is heading, for example, the consumer price index (CPI).

CPI is the headline inflation number used by the Reserve Bank's Monetary Policy Committee to set the repo rate. February's CPI falling back into the government's target range of under 6% (but over 3% since a little inflation is seen as economically beneficial) and the Reserve Bank's confidence that it will stay there for the next two years resulted in this week's 0.5% rate cut.CPI is also widely used by the general business community in contracts. For instance, when engineering firms pitch for long-term construction projects, they conventionally quote their prices as escalating by CPI as the work progresses.But CPI is only one of dozens of economic indicators produced by Statistics South Africa.Besides government statistics, there are opinion polls like the purchasing manager's index (PMI) done by Stellenbosch University's Bureau of Economic Research, to mention one of many other data gatherers.To get an overview of just how many figures are regularly published to gauge the economy's temperature, a good starting point is all the data the Reserve Bank blends to track South Africa's business cycles (see below).Along with most countries, the Reserve Bank applies the theories set out by economists Arthur Burns and Wesley Mitchell in their 1946 book, Measuring Business Cycles.This separates economic indicators into three groups: leading, coincident and lagging.The coincident indicator offers an alternative to gross domestic product (GDP) as a measure of where we are now. But, like GDP, it is pretty historic by the time it gets published.The leading indicator looks ideal for investors, since it supposedly forecasts where the coincident indicator will be in 14 to 15 months.

Main Macroeconomic Indicators

Macroeconomic indicators are statistics that indicate the current status of the economy of a state depending on a particular area of the economy (industry, labor market, trade, etc.). They are published regularly at a certain time by governmental agencies and the private sector.
Markets.com provides an Economic calende for the dates of critical fundamental announcements and events. When properly used, these indicators can be an invaluable resource for any Forex trader.
In truth, these statistics help Forex traders monitor the economy's pulse; thus it is not surprising that these are religiously followed by almost everyone in the financial markets. After publication of these indicators we can observe volatility of the market. The degree of volatility is determined depending on the importance of an indicator. That is why it is important to understand which indicator is important and what it represents.

• Interest Rates Announcement

  Interest rates play the most important role in moving the prices of currencies in the foreign exchange market. As the institutions that set interest rates, central banks are therefore the most influential actors. Interest rates dictate flows of investment. Since currencies are the representations of a country’s economy, differences in interest rates affect the relative worth of currencies in relation to one another. When central banks change interest rates they cause the forex market to experience movement and volatility. In the realm of Forex trading, accurate speculation of central banks’ actions can enhance the trader's chances for a successful trade.
  

• Gross Domestic Product (GDP)

  The GDP is the broadest measure of a country's economy, and it represents the total market value of all goods and services produced in a country during a given year. Since the GDP figure itself is often considered a lagging indicator, most traders focus on the two reports that are issued in the months before the final GDP figures: the advance report and the preliminary report. Significant revisions between these reports can cause considerable volatility.

• Consumer Price Index

  The Consumer Price Index (CPI) is probably the most crucial indicator of inflation. It represents changes in the level of retail prices for the basic consumer basket. Inflation is tied directly to the purchasing power of a currency within its borders and affects its standing on the international markets. If the economy develops in normal conditions, the increase in CPI can lead to an increase in basic interest rates. This, in turn, leads to an increase in the attractiveness of a currency.

• Employment Indicators

  Employment indicators reflect the overall health of an economy or business cycle. In order to understand how an economy is functioning, it is important to know how many jobs are being created or destructed, what percentage of the work force is actively working, and how many new people are claiming unemployment. For inflation measurement, it is also important to monitor the speed at which wages are growing.

• Retail Sales

  The retail sales indicator is released on a monthly basis and is important to the foreign exchange trader because it shows the overall strength of consumer spending and the success of retail stores. The report is particularly useful because it is a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables. It can be used to predict the performance of more important lagging indicators, and to assess the immediate direction of an economy.

• Balance of Payments

  The Balance of Payments represents the ratio between the amount of payments received from abroad and the amount of payments going abroad. In other words, it shows the total foreign trade operations, trade balance, and balance between export and import, transfer payments. If coming payment exceeds payments to other countries and international organizations the balance of payments is positive. The surplus is a favorable factor for growth of the national currency.

• Government Fiscal and Monetary policy

  Stabilization of the economy (e.g., full employment, control of inflation, and an equitable balance of payments) is one of the goals that governments attempt to achieve through manipulation of fiscal and monetary policies. Fiscal policy relates to taxes and expenditures, monetary policy to financial markets and the supply of credit, money, and other financial assets.
  
  
  
  

Conclusion: There are many economic indicators, and even more private reports that can be used to evaluate the fundamentals of forex. It's important to take the time to not only look at the numbers, but also understand what they mean and how they affect a nation's economy.

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Stop Losses and Take Profit Orders

Forex trading can carry significant risks, and various techniques can be used to minimise and control this.

STOP (STOP LOSS) ORDER:

Stop Loss

A type of order that turns into a market order to buy or sell stock or options when and if a specified "stop" price is reached. Stop orders to buy stock or options specify prices that are above their current market prices. Stop orders to sell stock or options specify prices that are below their current market prices.

A Stop Loss Order is an automatic close of a trade that you can set to happen if your currency goes in a direction that would cause you to lose money. For example, if you sold a currency short with the intention of letting its value decrease and buying it back for a profit, you could set a stop loss order if the currency moved upwards by a certain amount. Additionally, if you bought a currency and it began to fall, your Stop Loss would keep you from losing more than you wanted to by selling the currency automatically.

UFXMarkets gives you the option of setting your own Stop Loss Orders so that you control the value of your trade and can ensure that it doesn't drop below a certain level. This way you can minimize your risk on each investment without constantly monitoring all your trades. It's important to remember that a Stop Loss does not guarantee to execute at your requested rate, though in Normal Market Conditions most Stop Losses are filled at the requested rate. Normal Market Conditions reflect any time in the market when liquidity is high and there are no extraordinary events occurring that increase volatility.

Stop-Loss / Limit Orders

Stop-Loss and Limit orders are protective orders that close an open position or future position under certain conditions, namely price.

Stop-Loss Orders are used to limit trader's losses if the market moves against their position. The trader sets the maximum amount (in terms of pips) that he is willing to lose on a certain trade. When that specified price is reached, the trade is executed.

Conversely, Limit Orders are used to lock in the trader's profit if the market moves favorably. The trader sets in advance the price at which he wants to close his position.

In the example below, a trade was opened at the market price of 1.0561(buying order). According to the stop-loss order, the position will be closed if and when the price falls to 1.0553. According to the take-profit order, the position will be closed if and when the price hits 1.0565.

Entry Stop Orders – Entry stop orders are orders that are being placed by traders to enter the market at a less favorable price than the current price. A BUY Entry Stop order will be placed above the current market price. When A SELL Entry Stop order will be placed below the current market price.

When placing Entry Stop Orders, the trader expects that once the market's momentum breaks through the specified price, the trend's movement is confirmed and will continue in that direction.

For example:

The USD/CAD trades at 1.0553 / 1.0557. You estimate that the USD/CAD will continue trending higher. You also believe that should the pair break above 1.0600, it will rise by at least 50 pips. Thus, you place your BUY entry stop order of 20 lots (100,000) USD/CAD at 1.0600.

Trailing Stop-Loss Orders

A trailing stop-loss order is a stop-loss order that is set by the trader at a fixed number of pips from his entry rate. The stop loss order is automatically moved as the market price moves, but only in the direction of the investor's trade.

For example:

If you're Long on the USD/CAD pair at 1.0552 and you set the trailing stop at 30 pips, the stop will initially become active at 1.0522 (=1.0552-0.030).

If the USD/CAD moves higher to 1.0565, the stop-loss order adjusts higher, pip by pip, with the market price and will then be active at 1.0535 (=1.0565-0.030).

If the USD/CAD ever goes down by 30 pips from 1.0565 to 1.0535, your stop will be triggered and your position closed. If the market goes up from 1.0565, your trailing stop will continue to move up in order to lock in additional profits.

One-Cancels-the-Other Orders (OCO)
OCO orders are combined orders with both a stop price and a limit price. When one of the orders is executed, the other is automatically cancelled. OCO orders can be applied to open positions, or they can be used to open a new position.

Say for example a trader believes that the USD/CAD, currently traded at 1.0548/1.0552, will continue trending higher; you believe that should the pair break above 1.0560, it will rise to at least 50 pips. Nevertheless, you expect that prior to this major incline, the pair will retrace to 1.0544. You can place an entry limit at 1.0544, but in case the pair does not hit 1.0544 before climbing higher, you would miss the trade. You then place an OCO order to buy the USD/CAD if it reaches 1.0544 or 1.0560. Of the two, the first bid price to exist in the market will trigger the order:

Stop and limit orders entered on an existing position are also types of OCO orders. When either the stop or the limit is executed, the other is automatically canceled.

Take Profit

A Take Profit is an automated order you set so that your account will liquidate a particular currency position if it reaches a certain level of profit. This way you ensure yourself a profit. The downside to the Take Profit is that sometimes you get in on the ground floor of an especially profitable trend that continues long after you've exited and you accidentally deprive yourself of an even more profitable trade.

Take Profit orders mean that you are able to take advantage of any profits before the rate falls again and your profit reduces, without constantly monitoring your trades.

Take Profit and Stop Loss Orders are crucial tools in enabling you to professionally manage your trades. Where you set these orders depends on your level of risk, but it is good practice to use them with every trade you make. Management of positions and your investment is key to successful Forex trading.

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Trading Tips

Forex Trading Tips 

Forex has caused large losses to many inexperienced and undisciplined traders over the years. You need not be one of the losers. Here are twenty forex trading tips that you can use to avoid disasters and maximize your potential in the currency exchange market.

 

• Know yourself. Define your risk tolerance carefully. Understand your needs.

To profit in trading, you must make recognize the markets. To recognize the markets, you must first know and recognize yourself. The first step of gaining self-awareness is ensuring that your risk tolerance and capital allocation to forex and trading are not excessive or lacking. This means that you must carefully study and analyze your own financial goals in engaging forex trading.

•  Plan your goals. Stick to your plan.

Once you know what you want from trading, you must systematically define a timeframe and a working plan for your trading career. What constitutes failure, what would be defined as success? What is the timeframe for the trial and error process that will inevitably be an important part of your learning? How much time can you devote to trading? Do you aim at financial independence, or merely aim to generate extra income? These and similar questions must be answered before you can gain the clear vision necessary for a persistent and patient approach to trading. Also, having clear goals will make it easier to abandon the endeavor entirely in case that the risks/return analysis precludes a profitable outcome.

• Choose your broker carefully.

While this point is often neglected by beginners, it is impossible to overemphasize the importance of the choice of broker. That a fake or unreliable broker invalidates all the gains acquired through hard work and study is obvious. But it is equally important that your expertise level, and trading goals match the details of the offer made by the broker. What kind of client profile does the forex broker aim at reaching? Does the trading software suit your expectations? How efficient is customer service? All these must be carefully scrutinized before even beginning to consider the intricacies of trading itself.Please refer to our forex broker reviews to find a reliable broker that suites your trading style.

•  Pick your account type, and leverage ratio in accordance with your needs and expectations.

In continuation of the above item, it is necessary that we choose the account package that is most suited to our expectations and knowledge level. The various types of accounts offered by brokers can be confusing at first, but the general rule is that lower leverage is better. If you have a good understanding of leverage and trading in general, you can be satisfied with a standard account. If you’re a complete beginner, it is a must that you undergo a period of study and practice by the use of a mini account. In general, the lower your risk, the higher your chances, so make your choices in the most conservative way possible, especially at the beginning of your career.

•  Begin with small sums, increase the size of your account through organic gains, not by greater deposits.

One of the best tips for trading forex is to begin with small sums, and low leverage, while adding up to your account as it generates profits. There is no justification to the idea that a larger account will allow greater profits. If you can increase the size of your account through your trading choices, perfect. If not, there’s no point in keeping pumping money to an account that is burning cash like an furnace burns paper.

• Focus on a single currency pair, expand as you better your skills.

The world of currency trading is deep and complicated, due to the chaotic nature of the markets, and the diverse characters and purposes of market participants. It is hard to master all the different kinds of financial activity that goes on in this world, so it is a great idea to restrict our trading activity to a currency pair which we understand, and with which we are familiar. Beginning with the trading of the currency of your nation can be a great idea. If that’s not your choice, sticking to the most liquid, and widely traded pairs can also be an excellent practice for both the beginner and the advanced traders.

• Do what you understand.

Simple as it is, failure to abide by this principle has been the doom of countless traders. In general, if you’re unsure that you know what you’re doing, and that you can defend your opinion with strength and vigor against critics that you value and trust, do not trade. Do not trade on the basis of hearsay or rumors. And do not act unless you’re confident that you understand both the positive consequences, and the adverse results that may result from opening a position.

• Do not add to a losing position.

While this is just common sense, ignorance of the principle, or carelessness in its employment has caused disasters to many traders in the course of history. Nobody knows where a currency pair will be heading during the next few hours, days, or even weeks. There are lots of educated guesses, but no knowledge of where the price will be a short while later. Thus, the only certain value about trading is now. Nothing much can be said about the future. Consequently, there can be no point in adding to a losing position, unless you love gambling. A position in the red can be allowed to survive on its own in accordance with the initial plan, but adding to it can never be an advisable practice.

• Restrain your emotions.

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Greed, excitement, euphoria, panic or fear should have no place in traders’ calculations. Yet traders are human beings, so it is obvious that we have to find a way of living with these emotions, while at the same time controlling them and minimizing their effect on our lives. That is why traders are always advised to begin with small amounts. By reducing our risk, we can be calm enough to realize our long term goals, reducing the impact of emotions on our trading choices. A logical approach, and less emotional intensity are the best forex trading tips necessary to a successful career.

•  Take notes. Study your success and failure.

An analytical approach to trading does not begin at the fundamental and technical analysis of price trends, or the formulation of trading strategies. It begins at the first step taken into the career, with the first dollar placed in an open position, and the first mistakes in calculation and trading methods. The successful trader will keep a diary, a journal of his trading activity where he carefully scrutinizes his mistakes and successes to find out what works and what does not. This is one of the most importance forex trading tips that you will get from a good mentor.

• Automate your trading as much as possible.

We already noted the importance of emotional control in ensuring a successful and profitable career. In order to minimize the role of emotions, one of the best of courses of action would be the automatization of trading choices and trader behavior. This is not about using forex robots, or buying expensive technical strategies. All that you need to do is to make sure that your responses to similar situations and trading scenarios are themselves similar in nature. In other words, don’t improvise. Let your reactions to market events follow a studied and tested pattern.

•  Do not rely on forex robots, wonder methods, and other snake oil products.

Surprisingly, these unproven and untested products are extremely popular these days, generating great profits for their sellers, but little in the way of gains for their excited and hopeful buyers. The logical defense against such magical items is in fact easy. If the genius creators of these tools are so smart, let them become millionaires with the benefit of their inventions. If they have no interest in doing as much, you should have no interest in their creations either.

• Keep it simple. 

Both your trade plans and analysis should be easily understood and explained.

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Forex trading is not rocket science. There is no expectation that you be a mathematical genius, or an economics professor to acquire wealth in currency trading. Instead, clarity of vision, and well-defined, carefully observed goals and practices offer the surest path to a respectable career in forex. To achieve this, you must resist the temptation to overexplain, overanalyze, and most importantly, to rationalize your failures. A failure is a failure regardless of the conditions that led to it.
  

• Don’t go against the markets, unless you have enough patience and financial resilience to stick to a long term plan.

In general, a beginner is never advised to trade against trends, or to pick tops and bottoms by betting against the main forces of market momentum. Join the trends so that your mind can relax. Fight the trends, and constant stress and fear will wreck your career.

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• Understand that forex is about probabilities.

Forex is all about risk analysis and probability. There is no single method or style that will generate profits all the time. The key to success is positioning ourselves in such a way that the losses are harmless, while the profits are multiplied. Such a positioning is only possible by managing our risk allocations in accordance with an understanding of probability and risk management.

• Be humble and patient. Do not fight the markets.

Recognize your failures, and try to accommodate them if they can’t be eliminated completely. Above all, resist the illusion that you somehow possess the alchemist’s stone of trading. Such an attitude will surely be ruinous on your career eventually.

•  Share your experiences. Follow your own judgment.

While it is a great idea to discuss your opinion on the markets with others, you should be the one making the decisions. Consider the opinions of others, but make your own choices. It is your money after all.

• Study money management.

Once we make profits, it is time to protect them. Money management is about the minimization of losses, and maximization of profits. To ensure that you don’t gamble away your hard-earned profits, to “cut your losses short, and let profits ride”, you should keep the bible of money management as the centerpiece of your trading library at all times.

• Study the markets, fundamentals, and technical factors leading the price action.

That we have placed this so low in the list should not surprise the experienced trader. Faulty analysis is rarely the cause of a wiped-out account. A career that fails to begin is never killed by the consequences of erronerous application or understanding of fundamental or technical studies. Other issues that are related to money management, and emotional control are far more important than analysis for the beginner, but as those issues are overcome, and steady gains are realized, the edge gained by successful analysis of the markets will be invaluable. Analysis is important, but only after a proper attitude to trading and risk taking is attained.

• Don’t give up.

Finally, provided that you risk only what you can afford to lose, persistence, and a determination to succeed are great advantages. It is highly unlikely that you will become a trading genius overnight, so it is only sensible to await the ripening of your skills, and the development of your talents before giving up. As long as the learning process is painless, as long as the amounts that you risk do not derail your plans about the future and your life in general, the pains of the learning process will be harmless.

 

 

  

 

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