Money Management Systems

Discipline is the most important behavior a trader can master to become successful. “Discipline is the ability to plan your work and work your plan”. If you read any material from the greatest forex strategies and traders you will hear that discipline is the key to big profits. Sounds simple but most traders fail to understand its significance. 90 – 95% of traders lose money because they don’t understand that simple concept. Discipline in financial markets is related to the capacity of setting rules and sticking to them when trading.

In order to reach the right level of discipline a trader must appeal for a basic but forgotten instrument: the common sense. Trading forex can be a very profitable business but you should also remember that the outcome of any single trade is almost always random. It is, therefore, not sensible to attach yourself too strongly – emotionally or financially- to the result of any trade or series of trades. Greed and fear are common mistakes in the forex market. This kind of trading does not have a clear objectives definition and a trader can be lost on overtrading or just fall in shock with fear. To avoid this kind of mistakes traders must focus on managing how much you risk when you get an entry signal from your forex trading strategy.

Many professional traders risk a fixed percentage of their account (e.g. 2- 3%) per position. By using this method a trader gradually increases the size of his trades while he is winning and decreases the size of his trades when he is losing. Increasing the size of entries during a winning streak allows a geometric growth of the trader’s account. That way you can achieve protection from your own destructive tendencies. This particular development is called money management and professional traders use it as one of the best methods to avoid mistakes when trading.

The key to mastering money management is shifting your attention from the integral value of your profits and losses to the percentage value of your account balance. Once you have trained yourself to think of your profits and losses exclusively in percentage terms it will be a simple mathematical task to stick to your system. As you account grows this practice will help you to avoid the hesitation in placing the trades since you will know at that moment that you are still risking no more than amount dictated by you.

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Swing vs Scalping Forex Strategies: Everlasting Debate

How many times have you looked at a short term price chart with daily or intraday price bars moving like a seismograph readout without any clear clues of market direction? How many times have you then switched to weekly charts and easily recognized a number of very tradable smooth and stable long term trends. In fact, this disparity occurs almost all the time in the financial markets and these differences are easily exploited by appropriate technical analysis with simple forex strategies. This fact makes the difference between short term and long term strategies.

There is a furious debate between two ways of thinking when creating a strategy in forex. Very often some traders argue that intricate frameworks fill with mathematical trading system software and concepts are perfect to make the most of the rapidly fluctuation that a currency pair can have through a very short term. This particular category is shape by scalpers; traders who build short term trading strategies and allowing their positions to last only for a matter of seconds, to a full minute and rarely longer than that.. On the other hands, swing trading hold the same position for a long period of time, generally between a few days or weeks, trading on the basis of week or months oscillations.

Both short term and long term trading can be very effective; however, long term trading has some significant advantages. For an instant, traders involved in a long term investment will not be affected much by short term instability, volatility or just lack of liquidity.

Currently there is an inclination towards trading in shorter time frames as with scalping traders generates dozens or hundreds of trades per day making money from markets that are not even moving. However, short term practice goes against a long accepted maxim in the trading world: overtrading is one of the biggest sources of losses facing both new and established traders.

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Do Indicators Actually Work?

Any trader with a little bit of experience knows that that strategies structure must be as simple as the trader can. For that matter, many traders have chosen the basic component of trading currency and use it as a complete strategy: the currencies price.

Price always leads the analysis in forex market; most traders continually try all sorts of forex trading software and indicators to predict something that Price Action (PA) alone often shows. For that reason, a great forex debate has risen from the everlasting question about whether to use indicator or not in our forex strategies. And if it is so, how many of them a trader must use to avoid complications? Lest try to find the answer!!

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Fundamental Features Outlook

UK retail sales unexpectedly slowed down, a sign that consumers are cutting back on spending as unemployment rises. UK consumers also expect the price of goods and services to change around 2.4% and they believed that the economy would end up weaker rather than stronger. The Swiss National Bank, on the other hand, kept up its drastic measures to fight recession and fend off deflation. The SNB is renewing its policy of ultra-low interest rates, bond purchases and intervention to stop the Swiss franc rising.

Back on the continent, consumer prices in Canada were down 0.8% in August from a year earlier as the economic downturn helped push prices lower. New construction of U.S. houses increased in August, the highest level of starts since last November. Furthermore, the number of Americans filing first-time claims for jobless benefits fell last week. The economy continues to look pretty good. Nevertheless, the expected economic recovery is weakening the US Dollar. The dollar index dropped to its lowest level in one-year.

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Trading Currency Today

Switzerland’s real turnover in the retail sector rose 1% in July; economists had expected an increase of 0.7%: Swiss Franc has been one of the currencies that most enjoyed the dollar’s big fall last week. UK unemployment jumped to the highest level as the recession destroyed work in industries from banking to construction.

Consumer prices in the euro zone fell 0.2% in August, the statistics agency Eurostat reported today. The European Central bank said the recent run of negative annual inflation stems largely from comparisons with energy-related price jumps last summer. US consumer prices has also risen, however the dollar remained lower against the yen. The Canadian dollar ended higher near its strongest levels of the day, reflecting another sustained flight into riskier assets like stocks and commodities at the expense of the slumping U.S. dollar.

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Price Action: Forex Strategy Tip

Trading with indicators is a lot like trading somebody else’s signals. You will never know if it is right until is too late. You are never sure why the price is moving the way it is. In this article we are trying to show how the price can play an important role in a long term strategy.

Many traders simply like to go short into resistance or long into support, but as it’s tested this will produce a random amount of successful data. If you do this, you are guessing or hoping the level will hold and the market will reward you for this.

You don’t have the odds on your side and you will end up a loser. You need to trade with confirmation of price momentum on your side before you execute your trading signal. Those are only a few reason why professional traders and market gurus always advice you to create a strong forex strategy before even thinking about getting near to any trading platform. Furthermore, any trader with a little bit of experience knows that that structure must be as simple as the trader can. For that matter, many traders have chosen the basic component of trading currency and use it as a complete strategy: the price.

Price always leads the analysis in forex market; many traders continually try all sorts of forex trading software and indicators to predict something that Price Action (PA) alone often shows. As the picture shows we can describe a PA Area where we can confirm the preceding an extended PA Swing which often take place from some anticipation of an economic condition causing a sudden and dramatic currency price swing. As currency traders it is our responsibility to know what to expect in terms of a reaction in the FX market when different things happen.

In other words we can create a system using PA based on news release as a signal confirmation. Forex trading strategies based on PA can be found everywhere and it can be use as groundwork to create your own trading ideas. For instant, we create a system to trade four or five times per week on the hourly timeframe. We set trendlines on daily or weekly timeframes and we use it, together with whole numbers, as support or resistance levels. That way we work with 100 pips for Stop Loss and Take Profit limits levels. Even when we can set 2 lots most of the time it’s recommended to use 1:100 leverage and 1 lot to start with this strategy.

Strategy Summary

• This is a strategy to set two or three entries per day.
• Trade in H1 chart checking bigger long term charts for direction.
• Daily or weekly trendlines to compare with H1 behavior.
• Trendlines and whole numbers as resistances and supports levels.
• PA (Price Action) based on news release make the signal confirmation.
• Always work with 100 pips limits SL and TP.
• 100:1 leverage and 2 lots.

Additional Comments

We are not talking about trading news. We talk about using news releases as support for price’s movements. That is to anticipate the direction or the possible consequence that news releases can have on the price. Your profits can disappear quickly, so you need to make sure that you get them in the bank, when the risk reward is in your favor, the aim is to “hit and run”. You may miss some of the move that doesn’t matter if your aim is 60 – 70% of the overall profit potential. If you can do this regularly, you will make you a lot of money and ensure your forex trading strategy is successful over the long run.

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Tight Spread or Illusory Marketing

Nowadays just about every forex broker is claiming to have the tightest spreads in the industry. But marketing does have the ability to be illusory. We get a clear view of why traders must take under consideration this feature. Nothing influences more on our trading profitability than spreads changes. Finding a broker with a low spread policy can result in a big payoff. However, traders looking for their first broker, or those ones switching to a different one, must understand that spread is how brokers make their money.

The spreads will vary depending on the currency pair. Also depending of the account you are trading; if you have a mini account may have higher spreads than a full contract account. Spreads are tighter when there is good market liquidity but widen as liquidity dries up. Some forex dealers offer different spreads for different clients. If you have larger accounts or make larger trades, you may receive tighter spreads.

Spreads will change with market conditions because brokers will receive bids and ask quotes from banks and the difference will fluctuate according with the supply and demand forces. For example, if trading activity is low and liquidity is low there will be less people to close a deal with the current price. That means the price must change until it finds someone to accept it and those changes make currency pairs spread to fluctuate. In other words, if there are less people buying and selling in a trading day the spread will fluctuate until it find an equilibrium. However, as there always someone to buy and someone to sell these fluctuations can have no end.

In fact, a fluctuating spread is a good indicator of market conditions. If spreads widen like crazy that usually means one of 2 things low Liquidity or news times. Both scenarios require skills to trade and more qualification than just a little bit of luck. If you don’t have the necessary training just don’t trade during those episodes.

 

Fractional Pips

Most brokers are offering a Fractional Pip Pricing which it’s shown like a great opportunity for traders. But how this actually works? Our aim is to provide information about how this pricing system works and how will influence on you when building your forex strategy.

Most currency pairs are quoted to the fourth decimal place. As competition intensifies, more flexibility in setting prices, tight trading spreads, and better solution for trading currencies are require.

Fractional Pip Pricing should reduce bid/ask spreads for each of the more popular forex currency pairs even further, which due to the view of the market volatility we have experienced could be a really helpful tool. Traditionally, spreads are denoted in “pips”. For example, if the EUR/USD rate is quoted as 1.2150/2, then the spread is equal to 2 pips, calculated as 1.2152-1.2150. With the introduction of fractional pips, an extra digit of precision is used to quote rates. For example, the EUR/USD rate might then be quoted as 1.21501/19, where the spread then is equal to 1.8 pips instead of 2. With the extra digit, it is possible to adjust rates to a finer level of granularity, so forex brokers can maintain its already tight spreads and tighten them even further. Before this change, the buy price was rounded up to the nearest pip, and the sell price was rounded down. Now, with the additional decimal place, you will see a more accurate and usually tighter spread.

Theoretically, this should yield some savings to traders. However, some traders claim these may be just a marketing gimmick. It would be very difficult to tell if there were any real savings because the average spread could be just as wide as before, except that you would be subtracting 5 digits instead of 4. Example: 1.44235-1.41235=1.4423-1.4123=3 pips. And even though there will be many differences of fractional pips, this does not mean that the average is better than before.

Fractional Pip Pricing would be most powerful when the best bid/ask prices from all market participants are displayed. A statistical analysis of spreads might be needed to compare forex dealers, and to see if the introduction of Fractional Pip Pricing has resulted in narrower spreads. On the other hand, we need to get access to the right information which will give us the bases to further study these kinds of resources and services.

 

EU Economic and Financial Future Environment

Employment levels at British, French and German financial services firms won’t return to last year’s figure before 2013, according to a study by the City of London. This report examines the recent problems faced within the sector, and takes a realistic view of its medium term prospects. The report takes a comprehensive look at the financial sector, highlighting the scale and the range of activities undertaken by wholesale financial institutions.

The wholesale financial services sector is an important contributor to the EU’s external trade balance. The sector provides almost 45% of the total current account surplus in services. While wholesale financial services in the EU enjoyed uninterrupted growth for most of the past decade, the current financial crisis is patently having a profound effect on the industry. However, the report notes grounds for optimism; the situation is stabilizing as EU firms respond to increased competitive pressures and key business areas such as equity markets and asset management are already showing signs of recovery.

The scenario presented for the future prospects of the sector indicates further downsizing and restructuring before the recovery starts. In this scenario, output in wholesale financial services is expected to decline by 6.2% in the course of 2009, followed by a further modest dip in 2010, before starting to expand again from 2011 onwards. Although the sector is not expected to return to the strong growth rates seen in the period 2000 to 2007, recent job losses are expected to be made good over the medium term to 2013. The outlook varies quite significantly from county-to-country, with the United Kingdom expected to see the sharpest decline in activity. Those countries that are less reliant on the sector will not be as badly affected as those that are.

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Global Foreign Exchange Turnover

According to a recent report by the Reserve Bank of Australia (RBA), forex volume is down in nearly every major category. The report was based on a survey of the world’s six largest forex trading hubs – US, UK, Japan, Canada, Singapore, and Australia – and produced a few interesting revelations. The first is that forex volume peaked well after other capital markets. This can probably be attributed to the notion that there is never a bear market in forex. In other words, after stocks and bonds began to collapse in the summer of 2008, investors embarked on a mission, unprecedented in its speed, to move capital from risky countries to safe-haven countries. This switch, by definition, required the forex markets to facilitate. Turnover in foreign exchange markets over the past year has been significantly affected by the events of the financial crisis. The initial effect was seen in the foreign exchange swaps market; consistent with extreme volatility and counterparty concerns, turnover of foreign exchange swaps across the six markets declined sharply over the six months to October 2008. More recently, turnover in spot and forwards has also fallen. This is likely to be linked to the fall in the value of international trade as well as the contraction in cross-border investment activity. More timely data for the Australian foreign exchange market point to a rebound in foreign exchange turnover since early 2009, in line with improved conditions in financial markets and some stabilisation in the value of trade.

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