Your FOREX Trading Potential Can Be Predicted By Looking At Your Daily Emotional Behavior

As hundreds and thousands of articles have been written on the subject of trading the markets, and with the emergence of new financial instruments every day, I feel compelled to put together a dissertation on the most important element of trading, the emotional effect.

 

Before detailing the key elements, I will offer to you the thoughts of two prominent individuals. They do not need any introduction, as their work is known and appreciated all over the world. I am sure you will love their insight into the human psyche.

 

"When dealing with people, remember you are not dealing with creatures of logic but creatures of emotion". Dale Carnegie (1888-1955)

 

"Let's not forget that the little emotions are the great captains of our lives and we obey them without realizing it". Vincent Van Gogh (1853-1890)

 

In a world apparently dominated by logic, it is very interesting to find such "heretic" ideas. There is nothing more debilitating than the thought of us acting not on our heavily trained conscious, but rather on the unknown subconscious impulses.

 

I would like to add just one more fact to my presentation, in order for you to fully grasp the importance of this new approach to trading and in general to any business activity.

 

The Institute for Health and Human Potential, with offices in U.S.A., Canada and Australia is a research and learning organization that uses Emotional Intelligence to leverage performance and leadership. Fortune 500 companies, the world's top business schools, professional athletes and Olympic medallists seek their expertise.

 

According to their studies, "Research tracking over 160 high performing individuals in a variety of industries and job levels revealed that emotional quotient was two times more important in contributing to excellence than intellect and expertise alone"

 

Shocking? Not at all. It is our way to act on impulse, without questioning the triggers. .

 

It is well known already that the two emotions dominating trading are GREED and FEAR. What is less grasped is the extent to which these emotions influence our decisions.

 

While amateur traders are greedy when they lose and fearful when they win, professional operators have an exactly opposite attitude, being fearful when losing and greedy when winning.

 

While simple psychological training could help you discipline your impulse reactions, it is the experience you get "in the ring" that makes you understand how to play with these primal emotions.

 

We all hate to lose, not necessarily money. The sentiment is very powerful. ALL professional operators are well versed in dealing with it day in and day out. Although they have been through tense moments due to financial losses, they have learned the most important rule in trading the markets: losses are the COST OF DOING BUSINESS. They have a high emotional management procedure and are trained to implement it no matter how hard their "ego" may suffer.

 

This is easier said than done, as emotions kick in and all theory crash and burn together with any trading plan.

Here you have some easy steps to help you start taming your emotional horses.

 

— What you see is NOT what you get, as opposed to what you have been taught all your life. The way you act is just a consequence of years and years of education and interaction with others and not your genuine attitude. You are the product of an outside education, not necessarily positive.

 

— In the long run, your Forex business is just PART of your whole life, together with your family, friends, hobbies, long-term projects and various other activities. I personally use a very powerful "mantra" when in pain following a loss. LIVE TO FIGHT ANOTHER DAY!

 

— Never lose sight of the general picture. That is your primary goal. For a professional Forex operator, the primary goal is the PROTECTION of his or her trading capital. Keep a trading journal and learn from your mistakes.

 

— If you want to get a pretty accurate picture of your trading prospects, take a look at your daily emotional decisions. Most of the time, you will repeat all emotional behavior in your professional life.

 

If you take your time to sit back and observe your daily routines, the picture will emerge with greater clarity, helping you foresee hurdles along your trading career. Do you have a swinging mood? Do you change your mind very often? Are you capable of keeping a commitment? Do you lose your temper easily? Are you on the "half-full glass" or "half-empty glass" side of life?

 

These traits will not change just because you start trading. That is why you have to be very careful with your expectations. Base them both on your assets as well as liabilities, in order to obtain an accurate picture.

That is just the beginning, but a very resourceful one on a journey few of us have started yet.

 

I have seen traders taking NLP (Neuro-Linguistic Programming) lessons, practicing the Tai-Chi art or simply meditating. They try to get in touch with unseen forces at work deep inside, vectors of influence that rule our inner world.

 

The way to succeed in life has infinite variations but one common start, superbly crystallized in the following aphorism, inscribed in golden letters at the entrance to the Temple Of Apollo at Delphi and attributed to Socrates, among several other ancient Greek philosophers: NOSCE TE IPSUM,(Know yourself).

The magic of success is within our grasp. We just need to find the wand!

by Bogdan Vasile

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Learn To See The Line Between The Trading Plan And Your Emotional Impulses

The vast majority of Forex education organizations fail to address the only true characteristic of a market place, the human nature.

 

You can easily find loads of charts, pivot points, moving averages, trend lines and all sorts of Fibonacci ratios, together with the latest in trading automation. Any Forex website publishes some or all of these data, along with myriads of other details, interviews and opinions.

 

You may even get entry and exit signals, support and resistance levels, all of which could appear as sufficient in the decision making process.

 

I was under the same impression as a beginner, I was at the same level as an intermediate trader and only heavy losses and low risk/reward decisions made me look for a different approach to trading.

 

If you are aware of the importance of having a trading plan for each trade you plan to initiate, then you must be familiar with moments of doubt, when following the opening of the trade, the market goes awry, together with your emotions and self-esteem.

 

Do you feel frustrated? Join the vast club of frustrated professional Forex traders.

 

When you see the market moving against all odds and logic, your emotional self cries for an immediate position reversal (SHORT from LONG and vice-versa), in a complete disregard of your own trading plan.

 

On the other hand, all your training books, videos and mentors have pumped the "trading plan supremacy" into your brain.

 

While the viable solution seems to reside in the robotic way of trading the plan, a professional operator must learn to listen to his or her "hidden partner", the subconscious.

 

Our brain is capable of storing immense quantities of data, without us being aware of it. Our five senses perceptions are in constant use and they permanently add to our overall life experience. While our subconscious is capable of dealing with all this seamlessly, the conscious mind has only a very limited operational capacity, primarily used to help us dealing with our daily tasks.

 

As we trade, ALL our experiences are deposited deep within our brain, slowly building up what I call the unseen analyst. This is what you may call the sixth sense or the instinct traders develop as they progress.

As the name of the game with Forex trading is VOLATILITY and 80% of all trades do not last more than 2-3 days, with the vast majority of them being daytrades, it is easy to accept that conditions can and will change in a heartbeat, rendering most trade plans obsolete.

 

The only way to alleviate the contradictions between your emotional self and the heavily trained brain is to learn how to give them priority over time.

 

As a beginner, you simply cannot have the emotional experience to "feel" anything related to the market processes and therefore it is advisable to rely completely on the mechanisms of a trading plan.

 

At this stage, take your time to learn how to interpret the charts, prepare yourself according to the daily economic calendar and how to construct a comprehensive trading plan. Once you took a trading decision, stick with it, no matter what. At this stage, you are a robot, implementing a trading strategy.

Your emotional weight should be nonexistent in the economy of the trade.

 

As you progress along the path of becoming a professional Forex operator, your unseen analyst will start adjusting your trading decisions, silently participating in your trading decision process.

 

It is now the time to make room to your "feel", to accommodate your growing sentiment of "feeling the market".

 

Your emotional weight should now become an accepted presence.

 

You will soon learn how to adjust this "mix" in a way to achieve the optimal trading performance.

by Bogdan Vasile

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Forex Trading: The Fear Factor

Market knowledge and ability to understand analysis will only get you so far in forex trading, but without the nerve to actively compete risking your own money in the process you can never become a successful trader.

Wagering huge volumes of money in a market as susceptible to change is liable to cause a whole range of opposing emotions; fear, excitement and anxiety just to name a few. Battling against your emotions in order to complete a successful deal is one of the major hurdles, which must be overcome if you are to become a trader able to close huge deals and earn vast sums of money. If you can overcome or even use these emotions to make trades on the Forex then a successful career may be beckoning, but failure to do so will almost certainly cost you a substantial amount of money and end any lingering desires to progress in the busy world of exchange rate trading.

 

Initiating and closing a trade at the right times are the backbone of becoming a successful Forex trader. If a person cannot execute these deals at the right times, the psychological and financial damage can be crippling. Missing a huge trend or sitting too long on a good price, can be a demoralising experience, but one that many will encounter during a career in Forex trading.

 

Entering at the right time is just one thing that must be done correctly, but if you are unable to leave at the right time or hold your nerve during the course of the trade, the implications are potentially severe. For example accepting a small loss just before the market rises can lead to a horrendous huge profit/loss ratio margin. Similarly sitting on a currency price that is plummeting for too long could be financially crippling. Understanding the Forex market and having faith in your ability to judge a trend will pay dividends if you hold your nerve, backing out at the wrong time can prove to be a catastrophic misnomer.

 

The fear generated by investing your own personal money is the main thing that must be overcome. It is the culprit in so many failure stories, people who just couldn't overcome their anxiety investing unwisely, pulling out at the wrong time, missing a rise completely, all result in failure and are caused by fear. Accepting this fear, and using it to your potential will make you a stronger trader, able to trade freely and enjoy the thrill of the exchange. Fighting it will get you nowhere, understanding and overcoming it are the best remedies to this baseless emotion.

 

Trading strategies will help you ride out the rough times and capitalize on the good ones. Sometimes just taking a step back and accepting a few losses will give you the energy and the knowledge to attack the Forex with renewed vigour, and make some serious profits. Accepting that sometimes you will lose out, you need to be able to take the hits and roll with a punch, there are no guarantees in the trading market, so being able to move on and start again is a skill that is paramount to generating success.

 

Analysis and charts can only get you so far. You must first master these things, and be able to correctly interpret the figures that are represented in order to spot the trends and make your move. But this all means nothing if you don't have the courage of your convictions. If you are too afraid to buy and not sure when to sell then a glittering career in market trading is likely to elude you. 'The trend is your friend' but it means nothing if you firstly can't spot it and secondly don't have the courage to back it. Knowledge, strategies and overcoming fear may well be the 3 best ways to become to unlock the door to becoming a successful trader. Without all 3 you will more often than not become unstuck, so prepare, practice and evaluate everything before taking the plunge in the complicated world of Forex trading.

by Michael J Campbell

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Trading Psychology: Mistakes in a Trading Environment

When it comes to trading, one of the most neglected subjects are those dealing with trading psychology. Most traders spend days, months and even years trying to find the right system. But having a system is just part of the game. Don't get us wrong, it is very important to have a system that perfectly suits the trader, but it is as important as having a money management plan, or to understand all psychology barriers that may affect the trader decisions and other issues. In order to succeed in this business, there must be equilibrium between all important aspects of trading.

 

In the trading environment, when you lose a trade, what is the first idea that pops up in your mind? It would probably be, "There must be something wrong with my system", or "I knew it, I shouldn't have taken this trade" (even when your system signaled it). But sometimes we need to dig a little deeper in order to see the nature of our mistake, and then work on it accordingly.

 

When it comes to trading the Forexa market as well as other markets, only 5% of traders achieve the ultimate goal: to be consistent in profits. What is interesting though is that there is just a tiny difference between this 5% of traders and the rest of them. The top 5% grow from mistakes; mistakes are a learning experience, they learn an invaluable lesson on every single mistake made. Deep in their minds, a mistake is one more chance to try it harder and do it better the next time, because they know they might not get a chance the next time. And at the end, this tiny difference becomes THE big difference.

 

Mistakes in the trading environment

 

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

 

First scenario: The system signals a trade.

 

1. Signal taken and trade turns out to be a profitable trade. Outcome of the trade: Positive, made money. Experience gained: Its good to follow the system, if I do this consistently the odds will turn in my favor. Confidence is gained in both the trader and the system. Mistake made: None.

 

2. Signal taken and trade turns out to be a loosing trade. Outcome of the trade: Negative, lost money. Experience gained: It is impossible to win every single trade, a loosing trade is just part of the business; our raw material, we know we can't get them all right. Even with this lost trade, the trader is proud about himself for following the system. Confidence in the trader is gained. Mistake made: None.

 

3. Signal not taken and trade turns out to be a profitable trade. Outcome of the trade: Neutral. Experience gained: Frustration, the trader always seems to get in trades that turned out to be loosing trades and let the profitable trades go away. Confidence is lost in the trader self. Mistake made: Not taking a trade when the system signaled it.

 

4. Signal not taken and trade turns out to be a loosing trade. Outcome of the trade: Neutral. Experience gained: The trader will start to think "hey, I'm better than my system". Even if the trader doesn't think on it consciously, the trader will rationalize on every signal given by the system because deep in his or her mind, his or her "feeling" is more intelligent than the system itself. From this point on, the trader will try to outguess the system. This mistake has catastrophic effects on our confidence to the system. The confidence on the trader turns into overconfidence. Mistake made: Not taking a trade when system signaled it

 

Second Scenario: System does not signal a trade.

 

1. No trade is taken Outcome of the trade: Neutral Experience gained: Good discipline, we only need to take trades when the odds are in our favor, just when the system signals it. Confidence gained in both the trader self and the system. Mistake made: None

 

2. A trade is taken, turns out to be a profitable trade. Outcome of the trade: Positive, made money. Experience gained: This mistake has the most catastrophic effects in the trader self, the system and most importantly in the trader's trading career. You will start to think you need no system, you know better from them all. From this point on, you will start to trade based on what you think. Confidence in the system is totally lost. Confidence in the trader self turns into overconfidence. Mistake made: Take a trade when there was no signal from the system.

 

3. A trade is taken, turned out to be a loosing trade. Outcome of the trade: negative, lost money. Experience gained: The trader will rethink his strategy. The next time, the trader will think it twice before getting in a trade when the system does not signal it. The trader will go "Ok, it is better to get in the market when my system signals it, only those trade have a higher probability of success". Confidence is gained in the system. Mistake made: Take a trade when there was no signal from the system

 

As you can see, there is absolutely no correlation between the outcome of the trade and a mistake. The most catastrophic mistake even has a positive trade outcome, made money, but this could be the beginning of the end of the trader's career. As we have already stated, mistakes must only be related to the violation of rules a trader trades by.

 

All these mistakes were directly related to the signals given by a system, but the same is applied when getting out of a trade. There are also mistakes related to following a trading plan. For example, risking more money on a given trade than the amount the trader should have risked and many more.

 

Most mistakes can be avoided by first having a trading plan. A trading plan includes the system: the criteria we use to get in and out the market, the money management plan: how much we will risk on any given trade, and many other points. Secondly, and most important, we need to have the discipline to follow strictly our plan. We created our plan when no trade was placed on, thus no psychology barriers were up front. So, the only thing we are certain about is that if we follow our plan, the decision taken is on our best interests, and in the long run, these decisions will help us have better results. We don't have to worry about isolated events, or trades that could had give us better results at first, but then they could have catastrophic results in our trading career.

 

How to deal with mistakes

 

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

 

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

 

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

 

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

 

Step four: Take action. Taking proper action is the last and most important step. In order to learn, you need to change your behavior. Make sure that whatever you do, you become "this-mistake-proof". By taking action we turn every single mistake into a small part of success in our trading career. Continuing with the same example, redefining the system would be the trader's final step. The trader would put a system that perfectly fits him or her, so the trader doesn't find any trouble following it in future signals.

 

Understanding the fact that the outcome of any trade has nothing to do with a mistake will open your mind to other possibilities, where you will be able to understand the nature of every mistake made. This at the same time will open the doors for your trading career as you work and take proper action on every mistake made.

The process of success is slow, and plenty of times it is attributed to repeated mistakes made and the constant struggle to get past these mistakes, working on them accordingly. How we deal with them will shape our future as a trader, and most importantly as a person.

 

by Raul Lopez

www.straightforex.com

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Forex: No psychological limitations

Back when I first started learning about investing, I decided to start from the beginning and read basic books on personal finance as well as "guides" for understanding all of the investment world in a nut shell. Most of these authors were very knowledgeable and informative, but their investment advice was far too conservative for my taste. They would literally write chapter after chapter talking about the differences between conservative investing, which according to them generally yields somewhere around 5% PA, as opposed to "risky" investing which usually meant a diversified stock/mutual fund portfolio yielding (in my mind) only slightly higher averages. What kind of returns can you expect in the stock market? Well they say the market has gone up an average of 10% a year since Adam and Eve. Popular indexes like the DOW and the now more popular S&P500 have always, like real estate, "gone up over time."

 

Now, these market averages are almost worshiped like golden calves. Repeatedly drilled into my brain was the concept that there were hundreds (if not thousands) of fund managers and other "professionals" out there with Harvard degrees, decades of experience, millions of dollars under management, and they were all spending 15 hours a day consuming every single bit of market information in the hopes of beating these golden calves by a few points.

 

What chance did I have? If Dr. Fund Guru Jr. who eats, sleeps, breathes the markets and has more credentials than I have individual hairs on my body can't consistently make 20% a year...well...forget it kid...your chances are slim to none. I guess I'll buy some shares of XYZ fund and accept the scraps off the table from the stock gurus.

 

NOT!

 

The foreign exchange market offers many benefits that the stock market does not have. Most of these have been beaten to death on various forums, blogs, articles, e-books, etc. However, it's always good to reiterate the positive (my own personal reason is last): — Forex offers unprecedented liquidity. With over two trillion dollars transacted per day on the market, it makes filling any buy/sell order virtually instant. That equates to less slippage and more profitability. "Paper trading" stocks vs actually trading stocks is very different, because orders may not be filled in a timely manner. The difference between trading a forex demo account and an actual account is virtually nill. — Forex is available 24 hours a day 5.5 days a week, as opposed to the daylight trading hours of the stock exchanges. — Forex is uncontrollable by large entities. Large net worth individuals, banks and fund managers who throw their weight around in the stock market can often have huge effects on price action. Because of the immense volume of foreign currency traded per day, the market is unmoved by "heavy hitters." Not even central banks can control the Forex market. — Forex offers up to 200:1 leverage as opposed to 2:1 stock leverage. — Forex has no restrictions for selling short, as opposed to the stock market's "uptick" rule — Forex can actually be traded INSIDE of an IRA or Roth IRA account. — Forex gains are taxed at the preferred 60/40 rate, no matter what trading style you use (intra-day, swing, position) as opposed to the tax penalties for holding stocks for short periods of time.

 

The list does go on, but for me the biggest advantage is a psychological one. I know it probably sounds silly, but fear and intimidation can sometimes subconsciously defeat us before we even begin. I don't like the idea of having to live up to, and in a way, compete with "professional managers" who have more knowledge of the fundamentals of the markets than I ever will. It's almost as if Forex, in some way, levels the playing field. I don't have to psychologically compete against anyone's idea of what kind of returns are "acceptable and realistic" and what kind of returns are "pure fantasy." I only have to trade until I can find an acceptable reward to risk ratio, and consistent profitability thereof. The only one I compete against is myself.

by Joshua White

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Forex Market Trading And The Mind Games

First, what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.

 

Mind Games defined: Mind Games are a kind of social interaction where participants try to screw with one anothers' heads. The concept is most often used colloquially to refer to deceitful, confusing or Machiavellian situations. However some mind games are described by the psychology of transactional analysis.

 

When it comes to trading on the Forex market, winning is a matter of the mind rather than mind over matter. Any trader who's been in the game for any length of time will tell you that psychology has a lot to do with both your own performance on the trading floor and with the way that the market is moving. Playing a winning hand depends on knowing your own mind — and understanding the way that psychology moves the market.

 

Studying the psychology of the market is nothing new. It doesn't take a genius to understand that any arena that rides and falls on decisions made by people is going to be heavily influenced by the minds of people. Few people take into account all the various levels of mind games that motivate the market, though. If you keep your eye on the way that psychology influences others — including the mass psychology of the people that use the currency on a daily basis — but neglect to know what moves you, you're going to end up hurting your own position. The best Forex coaches will tell you that before you can really become a successful trader, you have to know yourself and the triggers that influence you. Knowing those will help you overcome them or use them. Are you saying 'Huh?" about now? Believe me, I understand. I felt the same way the first time that someone tried to explain how the mind games we play with ourselves influence the trades and decisions that we make. Let me break it down into more manageable pieces for you.

 

Anything involving winning or losing large sums of money becomes emotionally charged. All right. You've heard that playing the market is a mathematical game. Plug in the right numbers, make the right calculations and you'll come out ahead. So why is it that so many traders end up on the losing end of the market? After all, everyone has access to the same numbers, the same data, the same info — if it's math, there's only one right answer, right?

 

The answer lies in interpretation. The numbers don't lie, but your mind does. Your hopes and fears can make you see things that just aren't there. When you invest in a currency, you're investing more than just money — you make an emotional investment. Being 'right' becomes important. Being 'wrong' doesn't just cost you money when you let yourself be ruled by your emotions — it costs you pride. Why else would you let a loser ride in the hope that it will bounce back? It's that little thing inside your head that says, "I KNOW I'm right on this, dammit!"

 

To most people, being right is more important than making money. Here's the deal. The way to make real money in the forex market is to cut your losses short and let your winners ride. In order to do that, you have GOT to accept that some of your trades are going to lose, cut them loose and move on to another trade. You've got to accept that picking a loser is NOT an indication of your self-worth, it's not a reflection on who you are. It's simply a loss, and the best way to deal with it is to stop losing money by moving on — and really move on. Moving on means you don't keep a running total of how many losses you've had — that's the way to paralyze yourself. This brings us to the next point:

 

Losing traders see loss as failure. Winning traders see loss as learning. Not too long ago, my twelve year old son told me that before Thomas Edison invented a working light bulb, he invented 100 light bulbs that didn't work. But he didn't give up — because he knew that creating a source of light from electricity was possible. He believed in his overall theory — so when one design didn't work, he simply knew that he'd eliminated one possibility. Keep eliminating possibilities long enough, and you'll eventually find the possibility that works.

Winning traders see loss in the same way. They haven't failed — they've learned something new about the way that they and the market work. Winning traders can look at the big picture while playing in the small arena.

 

Suppose I told you that last year, I made 75 trades that lost money, and 25 that made money. In the eyes of most people, that would make me a pretty poor trader. I'm wrong 75% of the time. But what if I told you that my average loss was $1000, but my average profit on a winning trade was $10,000? That means that I lost $75,000 on trades — but I made $250,000, making my overall profit $175,000. It's a pretty clear numbers game — but how do you keep on trading when you're losing in trade after trade? Simple — just remember that one trade does not make or break a trader. Focus on the trade at hand, follow the triggers that you've set up — but define yourself by what really matters — the overall record.

 

Bottom line: You can't keep emotions out of the picture, but you can learn not to let them control your decisions. Keep it all in perspective and realise that there are a lot of big boys playing this game and playing it to win...

by David Mclauchlan

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Emotions And Forex Trading Don't Mix

The key to making money in the currency exchange market is to avoid emotional decisions and to follow a carefully thought out strategy that takes the current market and history into account. Going with your gut is not the way to go in the Forex market. Going with your gut could cost you money. Forex trading is a highly volatile market where emotions tend to run high. Emotions can influence your trading decisions, unless you have a strategy planned in advance, and stick to it, no matter what you think you're seeing at the moment. The keys to success in Forex are system, analysis and perseverance.

 

Most experienced traders tell novice traders that they need to develop a system — and stick to it no matter what. Letting your emotions rule your decisions can hurt your trading in a number of ways. The system tells you when to buy, what to buy, when to trade and what to trade for. By sticking to your system you'll maximize your profits. A system based on technical analysis of historical market trends is one of the most potent tools that you can utilize if you're just getting started in Forex trading. Many traders, with years of experience, continue to use this system to keep the profits rolling in. Many traders will tell you that when their gut instinct and their system collide, the system is almost always right.

 

Using a mechanical system takes the emotion out of your trading, eliminating one of the reasons people fail. Your system doesn't sway with emotions. It sticks to a tried and true course. To be effective, your system — whether you develop your own or adopt one created by someone else — should identify the entry and exit point of your trade, mitigating factors, and an exit strategy. In general terms this is as follows:

 

Under what conditions should I acquire a currency?

 

For instance, you may have a buy order for when a particular currency drops more than 5 pips because your analysis tells you that that's likely to be as low as it goes.

 

When should I trade one currency for another and for which one?

 

There are two reasons to exit — to maximize your profit, or minimize your loss. That means you have a set stop-loss order and a set take-profit order at which point you cash out your trade.

 

What factors will I allow to change that decision?

 

While the money market moves in predictable patterns, there are always individual variations of a trend within those patterns. If you've taken those variations into account, it will be far easier to decide when a factor really does make a difference, and when it's just wishful thinking. If you're not careful however this is where emotion could come into play and sour deals for you.

 

How will I trade out of a currency?

 

Your exit strategy may be as simple as a stop-loss order when my loss hits 5% or a take-profit order when I make 40% profit'.

 

Another key is perseverance. Analysis of trends in the market will show you that the market moves in dips and spurts within overall patterns that are predictable. No trend moves smoothly in an up or down line — there are inevitable periods of time when values suddenly spiral up or down based on some outside factor. These are the times when emotion can hurt your portfolio. When a currency that you're holding takes a sudden dip south, it's tempting to succumb to panic trading, cut your losses and run even if your system tells you to hold on. On the other hand, it's easy to catch the rising excitement as a trade starts increasing in value and scramble to buy more of the same. These are exactly the times to rely most heavily on your trading system. It will tell you exactly when to trade for maximum profit.

 

If you control your emotions and stick to the system you'll maximize your profits andall should be smooth sailing.

by David Mclauchlan

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Why Psychiatrists Make Better Traders Than Expert Economists?

It should be noted that millionaire traders, Elder, Williams and some others are in fact professional psychiatrists. And it is not accidental that not the economists are the leaders and most successful traders, but professional psychiatrists and psychotherapists. Think about it. You will become a successful trader when you understand why it happens with Forex. You will understand what your Forex mistakes are, and why you are making them. And when you correct these mistakes you will become a trader who has no psychological barriers and obstacles on his way to better earnings in the Forex market.

 

So, why do the psychiatrists make better traders than economists who, as one would think, have the Forex market at their finger tips?

 

The economists are confused by:

 

— the fact that exchange rates are not always related directly to the economic circumstances in the countries. Well, do you know any economist who would be bidding for low fx rates when the economic situation is getting better and better? Or the one who admits that technical analysis of currency pairs is more important for Forex trading than the fundamental one? Any economist is confident that this can never happen because he knows all the economic dogmas. But it happens in the Forex. After all, how can a trader lose with the currencies moving up and down by the economic rules? The currency will surely react to the economic changes in the country, but who knows when and how? Here is a tip: there is the Elliott fifth way to teach a lesson to the ones who believe that fundamental knowledge is enough (before the trend turns, the currency spurts absurdly by the old trend), to confuse and draw the newbies into the game, while the experts wait for the trend to turn back.

 

— the lack of psychological knowledge that helps to understand the behavior of the crowd. And that is self-evident.

 

Are there any methods to overcome this fear?

 

It seems that every Forex book, every article offers efficient solutions for psychological difficulties experienced by the traders.

 

IN FACT NEITHER OF THESE BOOKS CONTAINS METHODS TO OVERCOME THE FEAR EXPERIENCED BY A FOREX TRADER!

 

But what do these books offer instead?

 

Almost every book of this kind consists of two unequal parts:

 

— the bigger part of the book narrates about traders' problem that interfere with their Forex work and make it unsuccessful (nervousness, doubts, worries, fear, sleep deprivation, etc.). As if the traders do not know their own problems.

 

— the considerably lesser part contains conclusions and recommendations to the traders who are to solve their problems and overcome their fears to become successful.

 

The conclusions are disappointing:

 

Many psychiatrists realize that the new field opens before their eyes — now they may treat traders whose number amounts to millions all over the world and is growing with every day. And since most traders have a dream to become as successful as George Soros and other famous traders, this new field promises to be rather lucrative.

 

One thing is bad though: the overwhelming majority of these new-sprung trader brain specialists do not even know what the Forex is all about.

 

by Alexander Brin

http://forex-trading-advice-guide.com/

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Entry Orders

Entry Orders are executed the moment the market price reaches your specified price and opens a new position. The price can be above or below the current trading price.

There are four types of Entry Orders:

1. Entry-Limit-Buy: wait until the price goes lower than the current price (used in buying).

2. Entry-Stop-Buy: wait until the price goes higher than the current price (used in buying).

3. Entry-Limit-Sell (going short): wait until the price goes higher than the current price (used in selling).

4. Entry-Stop-Sell (going short): wait until the price goes lower than the current price (used in selling).

For example, if you want to buy Google shares, but not until the price drops to $450, you would place an Entry-limit Buy Order at $450. If the price never drops to that level, then the order will remain unexecuted, but it will remain a pending order until you cancel it.

To create a new Entry Order with Plus500 simply:
-> Go to the main trading lobby
-> Click on 'Buy' or 'Sell'
-> Click on 'Advanced'
-> Complete the relevant entry order
-> Click on 'Buy'

Source : Plus500.com

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Trailing Stop

The Trailing Stop feature allows traders to place a Stop Loss Order which automatically updates to lock in profits as the market moves in the trader’s favour. Trailing Stops can be placed by clicking the 'Advanced' button when creating a 'Market Order'. 

There are four ways to enter a Stop Loss Order:

1. You enter a Trailing Stop Price. For example, if your stock is selling at $40 per share, you might enter a Trailing Stop Loss Order at $37.50 per share.

2. You enter a Maximum Loss Amount. Plus500 will then calculate the relevant Trailing Stop.

3. You enter the distance in Pips from the current price. Plus500 will then calculate the relevant Stop Loss price.

4. You enter a percentage from the current price. Plus500 will then calculate the relevant Stop Loss price.

Example of a Trailing Stop:

12.50pm Yahoo is trading at $45.51/$45.73 (Sell/Buy)

12.50pm You enter a market order with Trailing Stop of 50 pips = $0.5 = (-1.1%) to buy 100 Yahoo shares
You buy 100 Yahoo shares at $45.73

Therefore, the initial stop loss will kick in when Yahoo sells at $45.01. ($45.51 – $0.5)

2.05pm Yahoo prices start to quickly rise and reach $47.60 (the new Stop Price changes to $47.10)

3.10pm Yahoo prices continue to rise and reach $49.75 (the new Stop Price changes to $49.25)

4.15pm Yahoo prices start to dive quickly and reach $42.51. As you had a Stop Price set at $49.25, Plus500 executed the Stop Loss at this figure. Stop Loss Executed.

Profit Summary: 100* ($49.25–$45.73) = $352. (If you had not set a Trailing Stop, and only had a Stop Loss, you would have sustained a large loss.) 

Source : Plus500.com

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Protect Your Profits

The Stop Loss Order is used to protect your profits on a stock that is rising. You decide the price you want to close an instrument at and instruct Plus500 to close the position if this price is reached. 

There are four ways to enter a Stop Loss Order. 

1. You enter a trading price. For example, if your stock is selling at $40 per share, you could enter a Stop Loss Order for $37.50 per share. When the stock price drops to $37.50, it trips the Stop Loss Order and Plus500 sells it. 

2. You enter a maximum loss amount. Plus500 will then calculate the relevant Stop Loss price. 

3. You enter the distance in Pips from the current price. Plus500 will then calculate the relevant Stop Loss price. 


4. You enter a percentage from the current price. Plus500 will then calculate the relevant Stop Loss price.

Source : Plus500.com

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Order Types

Buying and Selling at Market Prices

You can use Plus500 to buy and sell instruments at the current market price (within the price ranges that are set for the specific instrument). The 'Market Range' for each instrument is shown in the Buy/Sell popup box that appears when you click on 'Buy' or 'Sell' in the trader lobby.

Stop Limit

A Stop Limit Order is a way to protect your profits, should the instrument (Forex, Stock, Commodity or Index) rise. The stop limit order instructs Plus500 to sell an instrument when, and if, the instrument reaches a certain price.

Stop Loss – (Maximum Loss)

A Stop Loss Order is a way to protect yourself from a loss, should the instrument (Forex, Stock, Commodity or Index) fall. The Stop Loss Order instructs Plus500 to sell the instrument when, and if, the instrument falls to a certain price.

When the stock hits this price, the Stop Loss Order becomes a Market Order. A Market Order instructs Plus500 to immediately sell at the best possible price. In a volatile market, you may not get exactly the price you wanted, but it should be close.

Source : Plus500.com

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Initial Margin & Maintenance Margin

Initial Margin

In order to open a new position, available account equity must exceed Initial Margin Level requirement. The Initial Margin Level requirement is specific to each financial instrument.

To see the Initial Margin Level for a specific instrument go to the main lobby screen of Plus500 trading platform, select the instrument you wish to view and click on ‘Details’ on the far right hand side of the screen. A popup box will appear and the Initial Margin Level in shown in the top right hand corner of the box.

Maintenance Margin

In order to keep a new position open, you must ensure the available account equity exceeds the Maintenance Margin Level. Maintenance Margin Level requirements are specific to each financial instrument.

To see the ‘Maintenance Margin Level’ for a specific instrument go to the main lobby screen of Plus500 trading platform, select the instrument you wish to view and click on ‘Details’ on the far right hand side of the screen. A popup box will appear and the Maintenance Margin Level in shown in the top right hand corner of the box.

Source : Plus500.com

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Margin Call

The Maintenance Margin Level is the minimum amount of equity you need to maintain an open position. If your equity falls below this minimum amount, Plus500 will execute a Margin Call and close any open positions until your account equity exceeds the Maintenance Margin Level requirement.

Example of how a Margin Call can occur:

You signed up and deposited $600 via credit card
* Balance: $600 (Deposits - Withdraws + P&L of closed positions)
* Available Balance: $600 (Balance + P&L of open positions - Initial Margins)
* P&L = $0 (total profit and loss of all open positions including daily premiums)
* Equity: $600 (Balance + P&L of open positions)

11.30am - you buy 10 Google Shares (CFDs) at $540.00
* The total amount you bought is: 10*$540.00 = $5400
* The Initial Margin that is needed for 10 Google Shares is 10%: $540
* The Maintenance Margin that is needed to maintain 10 Google Shares is 5%: $270

If your equity falls below $270 you will get a Margin Call. Plus500 will liquidate your open positions.
* Balance: $600.
* Available Balance after you bought the Google shares is: $60 ($600 - 10%*$5400)
* P&L = $0
* Equity: $600 ($600 + $0)

12.15pm - Google shares fall to $520
* Balance: $600
* Available Balance: $0 ($600 - 10%*$5400 + 10*($520-$540))
* P&L = -$200 (10*$520 - 10*$540)
* 'Equity' is $400 (-$200 + $600)

1.10pm - Google shares fall to $490. You get a Margin Call and Plus500 liquidates your position.
* Balance: $600
* Available Balance: $0 ($600 - 10%*$5400 + 10*($490-$540))
* P&L = -$500 (10*$490 - 10*$540)
* Equity: $100 (-$500 + $600)

The reason you get a Margin Call is because your Equity is $100 and you need $270 to maintain an open position on 10 Google Shares. Therefore, Plus500 has liquidated your position. Your current balance is:

* Balance: $100 (Balance changes only when closing a position or withdrawing funds).
* Available Balance: $100 (Deposits - Withdraws + P&L of closed positions)
* P&L = $0 (no open positions)
* Equity: $100 (Balance + P&L of open positions)


Source : Plus500.com

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Closing a Position

Once you have Opened a Position the figures for the instrument you have chosen in the 'High/Low' column will change to a button stating 'Close Position'.

Simply click this ‘Close Position’ button and a popup box will appear for you to confirm or cancel your close. 

Source : Plus500.com

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Opening a Position

To open a position press the ‘Buy’ button next to the instrument in the main lobby screen.


A popup box will appear containing the following (fields will vary dependent on which instrument you have chosen to buy):


* Amount for Forex Purchase: Enter the number of basic units/lots that you wish to purchase.


* Number of Shares for Stocks: Enter the amount of shares that you wish to purchase. You need only to have a small percentage of the original value you are bidding for.


* Number of Contracts for Indices: Enter the amount of contracts that you wish to purchase. Each index point is worth a certain amount - usually 1USD or 1EUR depending which market the index is traded on.


* Close at Profit Rate (Stop Limit): Enter the 'Close at Profit' amount that you wish to sell the instrument. This is generally the maximum amount of profit you hope to make on a deal.


* Close at Loss Rate (Stop Loss): Enter the 'Close at Loss' amount that you wish to sell the instrument. This is generally the maximum amount of loss you could sustain on a deal.




Click on 'Advanced' and two further options will appear:


* Trailing Stop: Set the stop loss rate to the number of pips below the maximum price the instrument reaches. A trailing stop is a moving activation price which can help to maximize and protect profit as the price rises and limit losses when it falls.


* Only Buy When Rate Is (Limit Order): Set your price to only buy the instrument if it goes above or below your set price.




To ‘go short’ simply press the ‘Sell’ button next to an instrument in the main lobby screen and complete the fields in the popup box as before. 




Example of Opening a Position:


You signed up and deposited $1000 via credit card
* Balance: $1000 (Deposits - Withdraws + P&L of closed positions)
* P&L = $0 (total profit and loss of all open positions including daily premiums)
* Available Balance: $1000 (Balance + P&L of open positions - Initial Margins)
* Equity: $1000 (Balance + P&L of open positions)


8:07pm - you press ‘Buy’ Oil which is trading at $60 a barrel:
Your criteria are:
* No of Barrels: 100
* Close at Profit Rate: $64
* Close at Loss Rate: $55
* The total amount you bought is: 100*$60.00 = $6000
* The Initial Margin that is needed for Oil is 10%: $600
* The Maintenance Margin that is needed to maintain the Oil position is 5%: $300


* Balance: $1000
* P&L = 0. (Usually the spread of oil is 5 cents so you would have a P&L of -$5)
* 'Available Balance' after you bought oil is: $400 ($1000 - 10%*$6000 = $400)
* 'Equity': $1000 ($1000 + $0)


9:05pm - Oil jumps to $64.
* Balance: $1000
* P&L: +$400 (100*$64-100*$60)
* Available Balance: $800 ($1000 - 10%*$6000 + $400 = $800)
* Equity: $1400 ($1000 + $400)


9:15pm - Oil jumps to $66 - before your take-profit executes.
* Balance: $1000
* P&L: +$600 (100*$66-100*$60)
* Available Balance: $1000 ($1000 - 10%*$6000 + $600 = $1000)
* Equity: $1600 ($1000 + $600)


9:15pm - your 'Take Profit' order executes and the position is closed. You made $600 on the deal.
* Balance: $1600
* P&L: 0 (no open positions)
* Available Balance: $1600
* Equity: $1600



Source : Plus500.com

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Trading with Demo Money

The best way to learn how trading works at Plus500 is to download our free software, open an account and trade with demo money. Also read through the online help pages to get you trading quickly and effectively.

Free Demo Account features:

* No time limit
* Real market conditions - everything exactly as real trading conditions
* No risk - learn all the Plus500 features without risking your capital
* Setup, check and simulate trading strategies
* Online help and support team backup

Source : Plus500.com

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Trading at Plus500

Trading at Plus500 is straightforward and easy with no commissions or hidden fees. Plus500 is compensated for its services through the bid/ask spread. Our trading platform lets you buy any financial instrument listed on our website and sell it as quickly as a couple of seconds later. 

The main lobby of the software contains the buy/sell prices of all the instruments available. When entering an order to buy an instrument, the advanced trading platform allows you to add a stop loss, profit limit or trailing stop to protect your position - and profits. 

Trading example:


You signed up and deposited $5,000 via MoneyBookers.
* Balance: $5000. (Deposits - Withdraws + P&L of closed positions)
* P&L = $0. (Total profit and loss of all open positions including daily premiums)
* Available Balance: $5000. (Balance + P&L of open positions - Initial Margins)
* Equity: $5000. (Balance + P&L of open positions).

You think that Google shares will fall soon, and decide to go ‘Short’ on Google.

5:07pm - you click ‘Short’ beside the ‘Google’ stock in the main lobby, the sell price is $290.
Your criteria are:
* Number of Shares (CFDs): 100
* Close at profit rate: $280 (profit will be 100*$10=$1000)
* Close at loss rate: $310 (loss will be 100*$20=$2000)

* The total amount you sold short are: 100*$290 = $29,000.
* The Initial Margin that is needed for the Google shares is 10%: $2900.
* The Maintenance Margin that is needed to maintain Google's position is 5%: $1450.

Your position is now:
* Balance: $5000
* P&L = 0 (usually the spread of Google is 50 cents so you would have a P&L of -$50)
* Available Balance after you sold Google is: $2,100. ($5000 - 10%*$29,000 = $2,100)
* 'Equity': $5,000 ($5000 + $0)


9:05pm - Google climbs to $300.
* Balance: $5000
* P&L: -$1000 (100*$290 - 100*$300)
* Available Balance: $1100 ($5000 - 10%*$29,000 -$1000= $1100)
* Equity: $4000 ($5000 - $1000)

You decide to cut your losses and buy Google - you press 'Close Position' in the main lobby (near your open position).

9:05pm - your market buy executes at $300. You lost $1,000 on the trade.

* Balance: $4000

* P&L: 0 (no open positions)

* Available Balance: $4000

* Equity: $4000

Source : Plus500.com

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