The Forex Nitty Gritty

There is a doomsday scenario going around concerning Japan. Japan resembles a wasteland. Grass grows on bullet train tracks and mega cities decay with society returning to its distant agricultural roots. The USD/JPY currency pair would certainly change its relative values if this scenario were to play itself out.

The United States tends, it would seem, to focus on its own strengths and its own weaknesses. Few in the USA saw the deflation of Japan’s economy coming nearly two decades ago. Few expected to see India challenge China as the most populous nation even though the “one couple one child” policy has been China’s law for more than a generation.

Japanese society is aging and the Japanese national debt is getting dangerously high. Japan may have been the industrial society worst hit by the recession with unused equipment stacked up all over the country. If you are Forex trading the USD/JPY currency pair this is important information. Forex trading the USD/JPY currency pair will be more successful if you have a little advance information about moves the Japanese government might make that will alter the value of the Yen and thus the relative values of the USD/JPY currency pair.

Japanese national debt is not the only issue in Asia. Chinese society is aging and India will outpace China in a few years as the world’s most populous nation. China has a serious problem with water shortage in the Western provinces where there are also problems with disgruntled ethnic groups. The relative value of the Yuan is expected to go up with China’s industrial growth but so was Japan supposed to end up owning the world at the end of the 80’s when their economy collapsed.

Asia will become progressively more important to the world’s economy over the years but not all nations will be winners and not all will be losers. As the Japanese National Debt makes everyone worry whether their technical base is still strong and whether they will be continually able to invent new, attractive products. Forex trading the USD/JPY currency pair does not mean that you should necessarily write off the Yen or the Japanese economy.

The current wild card in Asia is the matter of North Korea. As North Korea shoots missiles over Japanese territory the Japanese are launching satellites and quietly re-arming. Old timers will tell you that one thing that makes other Asian nations loose sleep is the thought of a re-militarized Japan. Image the effect on the USD/JPY currency pair on the announcement of a Japanese nuclear bomb.

That is not to say that Japan would do something so stupid but to remind those in the United States who continually see things through “American eyes” that there are other factors to take into consideration in Forex trading whether it is the USD/JPY currency pair or other major and minor currency pairs. The world has gotten to be a much smaller and more interconnected place, especially with Forex trading. Forex trading brings one into closer contact with the changes throughout the world than other forms of trading. Stay in touch with your Forex trading and stay profitable.

Select one of the following mindsets if you are thinking about becoming a Forex Trader.

The Independent trader or the Dependent trader — The amount of potential gain you can obtain from the markets depends heavily on the type of trader you are. It will impact every facet of your life, including where and how well you live, where and how often you vacation, as well as whether you work for someone else.

It’s no surprise that people who act on their own to seize opportunity, unlike passive followers, can influence the outcome of their trading and their lives.

It is imperative that you realize that any undertaking needing slight effort, or none at all, will bring forth small, brief or insignificant results. Naturally, long-term results are more likely to be achieved when you do anything for yourself.

This is proven to be true by any kind of trading – Forex, stocks or other markets. Which one of the two kinds of traders with common mindsets are you?

Uninformed dependent traders generally dream of a lot of success with just a little work that should earn them substantial income even though they neither particularly understand how that might actually come about nor intend to apply themselves in any way to learning how trading does work.

Generally dependent traders are followers rather than leaders. They trade based on the latest “hot” tips, they tend to want to use automated ‘millionaire-making’ trading programs, and they follow those who claim to be news experts while blindly placing ‘can’t lose’ trades (that, of course, do lose). All of this is done without a well thought-out plan, and no real understanding of what they’re undertaking.

No doubt they will get discouraged with their losing ways and give up entirely.

Dependent traders are very much like the purchasers of lottery tickets in that they fully understand the tremendous odds against winning but know that someone always wins, so why not them?

Clearly, dependent traders, since they don’t believe they have control, don’t succeed financially.

The Independent trader is at the opposite side of the spectrum. This trader wants to control their financial future and has figured out (or will figure out) how the markets operate, which approaches to trading the markets are effective, and how to enable themselves to trade without needing the advice of a mentor or tips or news from the so-called experts.

An Independent trader knows and takes to heart that only through their own efforts can they maximize the odds of their succeeding, and attain their financial and life objectives. They will do everything to learn from other traders, continuously educate themselves, adjust after making mistakes, and reach great achievements.

We should mention, that at some time, everybody has a small amount of Dependent trader in them. The difference? Someone who is on track to becoming an Independent trader may, of course, look for a mentor or rely on some other solid education source at the start — but as their knowledge expands, the Independent trader starts to apply what they’ve learned to start trading independently.

A Dependent trader won’t ever do that.

In order to become an Independent Trader:

(1) Make and follow through with a trading plan. Decide the frequency of trading that best fits your daily schedule and then pick from #2 and #3 below the sources that align with your plan. Because they usually don’t work randomly, do not attempt to employ end of day trading techniques to day trading, or the other way around.

(2) Find two or three reputable sources to learn from. We can suggest some for you; however, the point is that you find one that you can comprehend and have faith in. Use these sources to learn all that is possible. Next, figure out how to apply it by yourself.

(3) Use several trading methods to learn and test. The chance of your succeeding is quite remote if you do not have the basic knowledge of trading techniques, chiefly in the usage of technical or fundamental indicators.

The steps just outlined depend on time and capital outlay. Nevertheless, you should look at them as the expense of your trading education — it makes more sense to invest in yourself rather than squandering your money in the market.

There are many currency pairs in forex trading. Most of them have unique characteristics that are best learned through practice rather than reading, but fortunately, the duration of the learning process can be reduced by dividing the pairs into categories based on factors such as the interest rate of central banks, or the current account statistics. But among all these groups, there’s one pair the importance of which rises above every other one, and which defies classification and grouping. That is the EUR/USD pair.

The importance of this pair is mostly the result of its status as the barometer of market sentiment. The U.S. dollar is of course the world’s most important currency by a large margin. The Euro, on the other hand, is a highly credible and prestigious currency, in spite of the young age of the ECB, and the somewhat exaggerated political problems of the European Union. With its sophisticated financial system, strong economic base, and large but stagnant population, many traders regard the European Union as a credible alternative to the hegemony of the U.S. over the global economy, and its currency is therefore regarded as a potential replacement for the U.S. dollar. Such a major shift in the global financial system is unlikely to occur any time soon, and if it indeed did occur, it would be the result of a protracted process. As such, the USD losing its status as the world’s currency is unlikely. However, traders use the EUR/USD to express their opinion on the stability of the U.S. economically and politically, which makes this currency pair the most important measure of volatility and risk perception in the market due to the important role of the American economy in the world.

The EUR/USD pair can be influenced by almost any event in any part of the world in the short term, depending on the mood of the market. For example, a terrorist attack in the Nigerian Delta can lead to a rise in the EURUSD, as oil prices rise, the dollar gets sold, and oil exporters and others diversify into the Euro. But in general, short-term events have a temporary effect, and cannot be taken to signal trend changes in the absence of long-term confirmation.

In the long term, the main determinant of the value of this pair is the dynamism of the world economy. In general, if the U.S. is exporting dollars for consumption, and importing from the rest of the world while running a trade deficit, some of the dollars accumulated by other nations get sold for investment and higher yield, resulting in a rise in the EUR/USD. This supply and demand balance is influenced by the U.S. Federal Reserve interest rate policies in most basic terms, but many other factors, such as the carry trade, and the global growth of trade, all influence the equation determining the value of the EUR/USD pair.

The EUR/USD pair is the most popular pair for traders, and it is thus the most liquid which results in lower volatility, and a relatively tamer experience for beginning traders. Those who are new to trading, and are just considering forex brokers for opening an account can keep this in mind, and begin their trading in this pair in order to reduce volatility, and the resultant emotional pressures of trading. Professionals like this pair for its liquid nature, and its popularity with option traders, and large actors like central banks, hedge funds, banks, and many others.

Whether a nation’s currency value goes up or down will depend upon its strategy for getting out of the recession. Traditionally, nations like the United States spend their way to recovery, with injections of cash into the financial system and, especially, by offering incentives to increase consumer spending. However, looking to the future, a better choice for getting out of the recession and creating the groundwork for a competitive society in the 21st century is by investing in improvements in infrastructure.

The long term trend for a given currency pair depends upon the economic strength and stability of a nation. The world is now emerging from the worst financial downturn in nearly 80 years. Huge amounts of money have been injected into economies in order to keep credit markets stable and the world seems to have avoided the worst, namely another Great Depression.

From the view of one’s Forex strategy, however, how a country deals with the short term problem is not enough. The question is which nation will use its “stimulus money” to improve its competitiveness in the coming decades. That nation will see its currency grow in value into the distant future.

Whether it is the nation or it is the business and industrial base of the nation that invests in its future, the outcome will be a more competitive and wealthier country. The outcome will be that within a given currency pair the better prepared country will see its currency appreciate and the nation which continually relies upon consumer spending and debt for economic recovery will see its currency depreciate in value in any and all currency pairs.

Although investment in economic infrastructure will show its effects over time, currency markets operate daily and the actions of nations and large economic entities are felt daily. Following the investment patterns of nations will allow one to formulate a more effective Forex strategy and to accomplish more in daily Forex Trading.

Following the investment activity of a nation will not only tell one whose currency will likely rise in the Forex market and whose currency will fall in the Forex market but will allow you to formulate a Forex strategy based upon an accurate prediction about where the action will be in the Forex market.

It is not just the fact that a currency will go up or down that allows for Forex trading profits but currency pairs vary continually, allowing the wise Forex trader to profit in both directions even when there is a steady upswing or down turn in a given currency.

Investment in hydroelectric projects, wind farms, biomass energy production and the like are likely to pay the USA dividends well into the 21st century and beyond as each barrel of oil that the USA does not import helps the value of the US dollar in all of the major currency pairs.

All of the improvements in weatherizing homes in the Northern USA will likewise lead to importation of less fossil fuel, a better balance of payments, and a stronger dollar in all currency pair relationships.

Fear is always a major problem for anyone wishing to trade forex online. No one knows what the market is going to do in the next instance, and trying to deal with this major unknown in our calculations can cause us to become stressed while applying our trading decisions. On the other hand, experience, and the consensus of traders shows that scared money cannot win. To help you deal with this long-term problem so that you can see immediate improvements to your trading results, we have compiled a few items of good advice which you can consult when fear is reducing your profitability.

1. State your goals, and be disciplined in their application

If you find yourself in the middle of the market action, observing many things going on with no idea on what to do, chances are high that you’ll perceive fear when taking any action. The best way of dealing with this problem is knowing what you want from the market. Have clear goals in your trading activity, and apply them with vigorous discipline. If the market conditions do not suit your expectations, simply refuse to take risks. That will allow you to avoid the impact of fear, and to concentrate on the practical aspect of trading without worrying about your capability.

2. Understand that losing is a natural part of a successful trading career

What is the trader afraid of? The losses that can be suffered in even the worst type of trading is limited to a small amount of money. You’ll not lose your life or family, unless you act foolishly and risk much more than you should. Otherwise, losing is a natural part of trading in forex. There has never been a credible and successful trader who made the claim of never losing. The good thing is that you are very much allowed to suffer losses in trading provided that you minimize them with proper money management methods, and prudent risk controls. The motto is to “cut losses short”, not to “avoid losses at all costs”. A trading career with no losses would be a paper trading career. No risk means no reward.

3. Read about the successes of past traders, educate yourself

A good way of boosting your confidence is learning about the experiences and backgrounds of past traders and understanding that they were human beings just like you. No great genius or wonderful education is necessary in trading, but prudence, patience, and commitment are indispensable to a successful trading career. By reading about the successes and failures of past traders, you can improve your understanding of the correct approach to trading, which can only be beneficial.

4. Recognize that there’s no luck or magic to trading, if you do the right thing, success will naturally follow

It is also crucial to understand that trading involves not one drop of luck. And there’s no place for magical trading strategies that will always deliver profits and no or very few losses. This expectation is simply against the basic principles of the trading game, and should be avoided at all costs. Trading is all about managing losses and misfortunes effectively, and you can never do so running after the Holy Grail, or awaiting for your luck to let you ride rainbows to El Dorado. Once you achieve this attitude, and remove the superstitions in your life, in time you’ll get rid of the fear of bad luck and realized losses as well.

5. Trade only when you want, in a relaxing, unstressed environment

To avoid fear in your trading time, ensure that the room where you pursue your activity is comfortable, away from stress and noise as much as possible. Listening to music is advised against, as that detracts from concentration, and increases emotional intensity, while in trading the goal is always to eliminate emotional pressures as much as possible.

Certainly it’s possible to overcome fear and panic in trading. But to achieve this goal, you need to follow a plan with discipline and consistency. To learn forex online, you need good sources. And to apply the lessons learnt, you need a committed and strong drive for success. With such an attitude, it is only a matter of time before all obstacles, including the fear factor, are eliminated on your path to profitability.

Method complexity syndrome is one trap that amateur Forex traders fall into regularly. They investigate a trading method, pay for it, and as soon as they get their hands on it, they skip ahead to the place where they think “the guts” of the method is located. Doing it that way, they manage to altogether neglect the other phases of trading, such as risk management, discipline, and psychology.

They jump right into the “guts” of the method only interested in the great, mythical, brow-raising, I-am-not-worthy bowing “secret” which will all at once disclose the code to the Forex strongbox and let them be the Ultimate Winner of every Forex pair. Over and over, they find themselves feeling deeply frustrated or criticizing the “guts” as something that everybody already knows (but had never tried themselves). Beginning traders will disregard it because they know this is too simple.

Or, the amateur trader will search for some complicated formula, or some arcane combination of signals but what they usually will find is a set of basic indicators that come together in a novel way, and they say, “Well there’s nothing so special about that!” Then they get frustrated or become disillusioned, because they truly believe that any successful method MUST BE complicated. They ask how it could possibly be that SIMPLE! Thus, they put away the method or give it back and bewail that it is “not complicated” at all.

Which is a severe blunder as the amateur trader will then make the same mistake, method after method, and they will fail to spend time delving into the intricacies of the entire trading process.

Avoid committing this mistake. You should know that the majority of trading methods are actually pretty simple. They build a more compact group of rules into a simple arrangement (adequately simple so that everybody can use them) but put them into play with an unconventional approach. If you cannot understand something, you cannot possible apply it; complex systems are for computer wizards and big banks.

Don’t miss a step in the learning process of the extreme new technique for trading Forex. Once you have your method in place, get the fundamental rules of getting setup, getting in and getting out (all of which should exist) down as well. Be sure you know how to employ stops to shield your trade. Learn how to best use your methodology in a timely fashion (no matter whether its by the hour, day or week) to be sure you can get the most from your method. Finally figure out how all aspects of what you learn will mesh together to make you more successful as a trader.

Take to Heart, Simple but Powerful – The key to get a leg up on the markets is to apply a non-textbook approach on just a limited set of indicators or rules.

To trade forex, you need a strategy. But even if you have a strategy, you must first be able to create a plan in the context of which you can apply your strategy consistently over time to generate good results. In this article we’ll try to suggest a basic framework for a trading plan with a gradual, step-by step approach.

Consider Your Mental and Physical Status

You don’t need to trade every day. On some days your mental and physical status will not be optimal for the generation of good profits in trading. Before going on to the further stages of planning, you must make sure that your physical and psychological condition is suitable to deal with the stresses of a trading day. Only when you feel confident that you’re emotionally relaxed enough to withstand the pressures should you consider the next stages of your plan. Remember that capital is limited, but opportunities in the forex market are unlimited.
 
Read the News, Study the Day’s Schedule (Major News, Stick Market, Options, etc.

Before beginning to trade, it is a necessity that you consider the time schedule of all the major events in the day which were pre-announced. Not all surprise, and not every development can be predicted, of course, but it’s always a good idea to be up-to-date with the day’s schedule so that you will not be caught in the dark when some option traders, news releases, or press conferences suddenly derail market action.

Study the Charts

Clearly, a daily trading activity demands a careful study of the charts each day on a routine basis in order to identify opportunities and minimize risks. Charts should be studied about two hours before the opening of the New York market on different time-frames, and the trader must take note of every configuration that may offer profits on an hourly basis.

Decide Where to Stop

It’s a great idea to have some predefined goals for each day’s minimum profits or maximum losses. If either of those goals is reached, we stop trading to continue on an another day. This is just another application of the principle that tells us to let profits run, and to cut loses short. And it may also be helpful in reducing the emotional pressures of trading.

It is always better to seek the faults with ourselves first before blaming the market, or the broker. Those may or may be against the trader at times, but the trader has control over his decisions only, and he should therefore concentrate on improving his own skills, instead of finding things to complain about. Forex broker reviews can help you sift among the myriad choices in this field, but filtering the problems of your character and style is left up to you.

When we discussed with Forex traders the problems they encountered while their trades were in progress, we found a common problem — watching winning trades become losing trades.

As we have already discussed, if you fail to manage your entire Forex trades from the entry to the exit, this will certainly happen to you, and be seemingly unstoppable at that.

Here is the basic issue of the problem: An initial stop loss is entered when a trade is entered.

The majority of traders attempt to realize ALL their profit at one time, but they do not set a ‘target’. When the trade begins to become profitable, many traders ’screengaze’, focusing on the amount of money they have made or are currently making. The mistake they make is that they do not plan on when to exit the trade — they stay in the trade too long and often watch as their profits dwindle when the market turns against them. Then they make matters worse by staying EVEN LONGER in an effort to ‘get back’ the profits they lost. This proposition, in Forex trading, is a loser.

They have lost the view of the purpose of the trade due to GREED.

Why is a trade carried out? It’s easy, minimize the risk and maximize the gain.

You do not have to exit a trade at the very peak in order to maximize gain. While the trade is in progress, you should have set rules that tell you when to exit for profit — and it is not when YOU believe it is!

More on that later… Minimizing risk is not just setting and then forgetting the initial stop loss — it is crucial that you manage your stop losses throughout the entirety of a trade.

When a trade is entered by Forex traders, their capital is protected initially and profit is thought of after. They can do the correct thing to safeguard their capital AND profits when their position begins to climb up.

Actually, there is an assumption that there will be a loss on each trade by many Forex traders that are successful. They adopt this psychological deception to ensure that their risk strategy is always employed to the utmost! When a trade begins to go their way (rather to their amazement), the first thing they do is put themselves into a break-even trade situation and then use relentless stop loss management to maximize their gains on the trade.

Risk is thought of first and second is profit.

You can have a better idea of how it’s done by watching this video: http://www.theforexnittygritty.com/private-forex-training

Trading forex online requires not just a mastery of technical subjects, but a reasonable command over the fundamental aspects of trends and market events which form the basis of market action. Comprehending the role of the US dollar as the world’s currency and the basis of international trade and finance is crucial to forming a fundamental grasp of the market action. Why is the dollar so important? Why does so much of forex action is denominated in the dollar? What is the secret of the importance of this currency to so many traders around the world? In this article we’ll take a look at the reasons behind this fact.

US is the world’s finance central

Few traders nowadays can fail to be aware that the U.S. is the world’s financial center. In spite of the important role played by Japan, despite the sophistication of London, contrary to the allure of places like the Cayman Islands, or Switzerland as tax havens to individual investors and hedge funds, the numerous financial centers of the U.S. remain the most dominant actors in the world markets. In spite of the importance of locations like Frankfurt or London, and rising centers such as Shanghai, New York, and the associated U.S. market remain the most powerful, sophisticated and deep ones in the world. The fact that the Chinese government seeks the expertise of U.S. firms for IPOs of public companies over their competitors in different parts of the world is one of the many evidences that can be shown to prove that the U.S. remains the center of the world economy.

US is the world’s largest economy

The U.S. economy is of course the world’s largest, and much of the influence and power of the U.S. currency is a result of the size of the American giant. U.S. is the major trade partner of many nations in the world, and although regional trade is increasing in importance with the rise of nations like India or China, America still remains the most important partner of many nations in the world.

US is the world’s greatest political and military power

Some nations prefer to support the dollar in return for U.S. guarantees of economic and diplomatic support. During the Cold War era, this was an even more important factor, but even today, nations in the Gulf Region, Australia, Taiwan, and even to a lesser extent in Europe, explicitly or implicitly support the dollar in exchange for political support, or simply traditions that have grown over the past decades.

The world financial system was built by the US

Finally, the international finance system as we observe it today was built mainly by the United States after the Second World War. Organizations like the IMF, or the World Bank are all sponsored by the U.S. to a large extent, and they were conceived and created to function best in a dollar-based international economic system.

Dollar is the trade and reserve currency of the world

As the world’s most important currency in economic, and political terms, the dollar is also the world’s reserve currency. Nations conduct international transactions in the dollar, and central bank reserves are mostly quoted and managed in U.S. dollar terms. No one has any interest in seeing a sudden collapse in the value of the U.S. dollar.

These are some of the basic reasons that give the U.S. dollar long-term advantage over other candidates to the status of the world’s reserve currency. Among these the role of the currency in the global financial system, and the diplomatic and political power of the U.S. are the most important factors contributing to its prestige at the moment. No forex trading strategy can be complete in the long term without taking the important advantages of the dollar into account, and that is only achieved by a careful study of the factors that have made the dollar centerpiece of the world financial system today.

 I discussed the matter with Bill Poulos today and asked him the same question. Are you aware of his statement?

“Even the most experienced Forex traders often wait way too long to protect their positions and often sit back and watch their profits disappear into the wind.” And that wasn’t all — he then went on to demonstrate a very simple concept, much like Gambler’s Ruin, that permeates the Forex trading world from top to bottom.

Traders work tirelessly to recoup gains when they begin to experience profits in a trade beginning to slide. They lose sight of the fact that they must safeguard the trade’s remaining gains. And what is the consequence? A reverse trend hangs on, and the once winning trade turns into a loser, the trader grows increasingly frustrated.

I have personally witnessed this, and it’s the simplest trap to find yourself in, since you can talk yourself into thinking that the Euro just reached that intra-day peak and it can shoot back up there! The only problem is, the high isn’t reached and your 20 or 30 pip profit evaporates and turns into a loss.

This is a drastic case, yet has it ever occurred in your own situation?

What action should you take?

There was an answer for that also!

He said that the majority of those who trade have no knowledge of what the available profit potential is for any single trade — that is, they don’t go into it with a set profit target, which would let them take whatever profit the market yields and then exit the trade in several steps. And, minus a strategy that protects their initial investment first and manages profits second, there is just no means for the average Forex trader to do okay in the foreign currency markets.

To position yourself correctly, as a trader you MUST have a tiered strategy — one that identifies for you the BEST available trades, clearly delineates a profit target, helps you manage yielding those profits, and right from the start, teaches you how to conserve your capital!

He refers to this highly unique philosophy as managing risk first and then, second, taking profits.

View the beginning of his current, free video series about it at this link:
http://www.theforexnittygritty.com/private-forex-training