Forex Trader Guide

Just like hedging your bet at the horse track you can hedge your trading in the Forex Market.

What is the Forex Market: The Forex and the stock market have some similarities, in that it involves buying and selling to make a profit, but there are some differences. Unlike the stock market, the Forex has a higher liquidity. This means, a lot more money is changing hands everyday. Another key difference when comparing the Forex to the stock market is that the Forex has no place where it is exchanged and it never closes. The Forex involved trading between banks and brokers all over the world and provides twenty-four hour access during the business week.

For those who are not familiar with the Forex market, the word “hedging” could mean absolutely nothing. However, those who are regular traders know that there are many ways to use this term in trading. Most of the time when you hear this phrase it means that you are trying to reduce your risk in trading. It is something that everyone who plans to invest should know about. It is a technique that can protect your investments to some degree.

While hedging is a popular trading term, it is also one that seems a little mysterious. It is much like an insurance plan. When you hedge, you insure yourself in case a negative event may occur. This does not mean that when a negative event occurs you will come out of it completely unaffected. It only means that if you properly hedge yourself, you won’t experience a huge impact. Think of it like your auto insurance. You purchase it in case something bad happens. It does not prevent bad things from happening, but if they do, you are able to recover a lot better than if you were uninsured.

Anyone who is involved in trading can learn to hedge. From huge corporations to small individual investors, hedging is something that is widely practiced. The manner in which they do this involves using market instruments to offset the risk of any negative movement in price. The easiest way to do this is to hedge an investment with another investment. For example, the way most people would deal with this is to invest in two different things with negative correlations. This is still costly to some people; however, the protection you get from doing this is well worth the cost most of the time. When you begin learning more about hedging, you start to understand why not many people completely know what it is all about. The techniques used to hedge are done by using derivatives. These are complicated instruments of finance and most often only used by seasoned investors.

When you decide to hedge, you must remember that it comes with a cost. You should always be sure that the benefits you get from a hedge should be more than enough to make it worth your while. You should make sure the expense is justified. If it is not, then you should not hedge. The goal of hedging is not to make money. You will not make large gains by hedging yourself. You have to take some risks in order to gain. Hedging is intended to be used to protect your losses. The loss cannot be avoided, but the hedge can offer a little comfort. However, even if nothing negative happens, you will still have to pay for the hedge. Unlike insurance, you are never compensated for your hedge. Things can go wrong with hedging and it may not always protect you as you think it will.

Keep in mind that most investors never hedge in their entire trading careers. Short-term fluctuation is something that the majority of investors do not worry with. Therefore, hedging can be pointless. Even if you choose not to hedge however, learning about the technique is a great way to understand the market a bit more. You will see large corporations and other large traders use this and may be confused at why they are acting this way. When you know more about hedging you can fully understand their strategies.

Whether you decide to use hedging to your advantage or not, you will benefit from learning more about it. You can use it like an insurance policy when trading. You should remember however that hedging can be costly. Always check to make sure the costs of hedging will not run against any profits you may or may not make. Be sure those costs are realistic and that your need for hedging is realistic as well. You will be able to use hedging to help cut your potential losses, however hedging will never guard against the negatives altogether. Learning about it will give you a better understanding at how large traders work the system however, which can in turn make you a better player in the trading game.

Remember that hedging should be left to the Pros of the industry unless you are playing the forex market as a hobby and don’t have a lot invested in it.

Just like hedging your bet at the horse track you can hedge your trading in the Forex Market.

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Successfully trading the Forex market requires you to have the discipline to follow some rules. If you can “stay the course” and follow your system, regardless of what the market is doing, you can make money trading Forex.

As with most forms of financial investing – stocks, futures, etc., there are risks. There are no crystal balls to show you what is going to happen next, so your exposure to these risks is largely controlled by your money management practices.

Casinos operate, normally with extensive profits, based entirely on risk management. They have learned how to take advantage of probability, which is the same concept traders rely upon, and turn the tables in their favor. They have learned that the longer they can keep a gambler in their facility, the better the odds they will end up with the gambler’s money.

Many new or inexperienced Forex traders fall victim to the hype surrounding foreign exchange trading. The electronic trading platforms used by retail Forex traders today, with their ability to display hundreds of “indicators” and present price data instantly, confuse many traders and actually lure them into making poor trading decisions.

Like futures, Forex trading offers high leverage. The readily available leverage of up to 400:1 has destroyed many potential trading careers. New traders, unaccustomed to the volatile nature of Forex, often fall into the trap of over-leveraged positions, which easily wipe out trading accounts.

Forex generally has some of the most predictable trends of all the markets over the longer term. However, many traders lose sight of the long term picture and try to trade based upon shorter term price charts. They believe shorter trends offer easy opportunities for profit, when in truth, most seasoned traders won’t even look at charts of less than 1 hour.

The volatility of Forex means that a tight stop-loss order will usually result in being stopped-out of many trades. Too many trades ending in this fashion result in your trading account being slowly eroded away. Traders need to keep their “real leverage” (amount of currency controlled divided by their actual account size) at 3:1 or less. This will allow you to relax your stop-loss settings and enjoy more successful trades.

In the currency market, you don’t have to worry (normally) about countries going broke. Typically the prices move in large waves, and if you had deep enough pockets, you could wait for the price to recover to profitable levels. The reality is this process could take years, so money management is again key.

Another benefit of this huge market is it’s liquid nature. It’s trading volume of approximately 2 trillion dollars per day ensure there can be no insider activities. Even the largest of central banks lack sufficient funds to seriously sway the market. Market moving data is released for all to see at the same time. No one has advance information of pending releases.

In conclusion, trading the Forex currency market is no more difficult than the stocks or futures markets and in fact has several advantages. To trade profitably in the currency market, you need to stick to leverage of no more than 3% to 5% and think “longer term”. The lower leverage will allow you to ride the fluctuations which are common to Forex, while enjoying the benefits of long term trending.

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What is Forex Trading? Many of you have just heard of Forex trading for the first time and how potentially wonderful it can be. And that’s cool! There is nothing wrong with that and it’s great that you are starting to learn about it! Forex trading when learned correctly can create a lot of cash flow and net worth over time. Don’t be too anxious though for quick profits, because that will surely lead you into trouble. Don’t try to make money to fast with large positions sizing (anything over 5% margin of the entire portfolio size).

Forex trading is similar to Futures trading which is sort of similar to stock trading. You can buy something and you can ’short sell’ something. That means you can buy something and make money with the Forex currency pair goes up (a currency pair is like a futures contract or shares of a stock) and you can make money when you sell a Forex currency pair short as the Forex currency pair goes down in price. Forex is great because it offers tremendous leverage but also tremendous flexibility so you can control that leverage. Forex trading platforms are quite advanced and allow you much control while actually encouraging you to use stop losses and profit taking orders.

The Forex markets offers the most advanced technology for trading, making trading easier and more productive. The entire world is involved collectively in developing new technologies and trading systems to take advantage of price moves in Forex. The Forex market also has some of the most advanced and sophisticated trading systems developed, with global participation in strategy and forex automated systems design. There are so many good systems coming out continually to help you trade successfully, fast! Forex offers great volatility so you can pretty much always take advantage of a good price move that can product a really good return.

You have continual opportunity in Forex to day trade, swing trade, trend trade, position trade… The best part about Forex trading is that you can start with a small amount of money in any style of trading. That is not true in stock trading. Even options trading requires a little more money. You can trade in fractional, or micro / mini lots in Forex to get started, to get good at Forex trading. Its truly an ideal place for a trader to become a good trader. While the stock market and futures markets may be dull the Forex market is so flexible and dynamic that there is always plenty of opportunity to capture some sort of swing or trend which contributes greatly to the arsenal of the professional trader. Once stocks are dull or futures are dull move onto to Forex and trade with tremendous leverage. So again, starting and getting good in Forex offers you many huge advantages!

What is Forex Trading? Many of you have just heard of Forex trading for the first time and how potentially wonderful it can be. And that’s cool! There is nothing wrong with that and it’s great that you are starting to learn about it! Forex trading when learned correctly can create a lot of cash flow and net worth over time. Don’t be too anxious though for quick profits, because that will surely lead you into trouble. Don’t try to make money to fast with large positions sizing (anything over 5% margin of the entire portfolio size).

Forex trading is similar to Futures trading which is sort of similar to stock trading. You can buy something and you can ’short sell’ something. That means you can buy something and make money with the Forex currency pair goes up (a currency pair is like a futures contract or shares of a stock) and you can make money when you sell a Forex currency pair short as the Forex currency pair goes down in price. Forex is great because it offers tremendous leverage but also tremendous flexibility so you can control that leverage. Forex trading platforms are quite advanced and allow you much control while actually encouraging you to use stop losses and profit taking orders.

The Forex markets offers the most advanced technology for trading, making trading easier and more productive. The entire world is involved collectively in developing new technologies and trading systems to take advantage of price moves in Forex. The Forex market also has some of the most advanced and sophisticated trading systems developed, with global participation in strategy and forex automated systems design. There are so many good systems coming out continually to help you trade successfully, fast! Forex offers great volatility so you can pretty much always take advantage of a good price move that can product a really good return.

You have continual opportunity in Forex to day trade, swing trade, trend trade, position trade… The best part about Forex trading is that you can start with a small amount of money in any style of trading. That is not true in stock trading. Even options trading requires a little more money. You can trade in fractional, or micro / mini lots in Forex to get started, to get good at Forex trading. Its truly an ideal place for a trader to become a good trader. While the stock market and futures markets may be dull the Forex market is so flexible and dynamic that there is always plenty of opportunity to capture some sort of swing or trend which contributes greatly to the arsenal of the professional trader. Once stocks are dull or futures are dull move onto to Forex and trade with tremendous leverage. So again, starting and getting good in Forex offers you many huge advantages!

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So many people continue to discuss the use of common technical indicators in trading systems, without realizing or perhaps just not bothering to look at more predictive trading tools that are available to trade the forex market.

And so the purpose of this article is to present to you a few alternatives to using lagging indicators and instead incorporate leading indicators in your system, and that means looking directly at price action which some refer to as trading naked.

What I’m about to explain here, is a number of analysis techniques which I have combined together giving you an idea of what is possible. Now just because I have combined the use of all four market timing techniques in this article, doesn’t mean you have to use them together in your trading system, rather incorporate the use of one or more of these tools in your own forex trading system to suit yourself.

The first thing to do, is to identify a main market move, then apply fibonacci retracement levels to that move. These fibonacci resistance levels will now act as a reference point. We will now refer to other tools to indicate a possible reversal around one of these resistance levels.

We now wait for a candlestick reversal signal to occur around one of the main fibonacci resistance levels to indicate a possible reversal trend. When you think about it, fibonacci and candlestick reversal patterns are a great combination of analysis tools to use. Think about it for a moment. Once you observe a natural level of resistance in the form of a fibonacci, and at the same time you notice a candlestick reversal signal occurring aroung this level, for example a shooting star pattern, it gives you added confidence that a change in trend to the downside may be about to occur.

This brings me to our third indicator which gives further indication of a reversal occuring. This third analysis technique is called Elliott Wave. Now it is not my purpose here to go into detail about the Elliott Wave Principle, but rather show you the possibility of the tools you could use in your forex trading system.

To give you an idea of what Elliott Wave is all about, I quote from the Elliott Wave Principle book:

“In the 1930’s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns, the patterns he discovered are repetitive in form but not necessarily in time of amplitude. Elliott isolated five such patterns or waves that recur in market data. He named, defined, and illustrated these patterns and their variations. He then described how they link together to form larger variations. He then described how they in turn link to form the same patterns of the next larger size and soon producing structured progression.”

And further on into the book it goes onto saying:

“The primary value of the wave principle is that it provides a context for market analysis.”

And that is exactly how you should use it in your own forex trading system, in context with your other indicators or tools such as Fibonacci retracements, and candlestick reversal patterns.

Now to the fourth and final market timing technique you could incorporate in your forex trading system, or use with the other technical tools I have presented here in this article. This last market timing technique is called the Delta Phenomenon. More information about this technique and all the others presented here in this article can be found on my website listed below.

Basically the Delta Phenomenon is a cyclic phenomenon that was observed to be common in all financial markets around the world. Here is a quote from the book:

“Once one discovers the number of points that repeat and where the repeat begins, he is able to predict where in time each of these points will occur as far in the future or the past as he may want to go.”

The interesting thing here is the fact that this sounds similar to the paragraph I read out of the Elliott Wave Principle book which stated that, Elliott Wave patterns are repetitive in form but not necessarily in time or amplitude. This is where the Delta Phenomenon could complement EW, since DP gives you an idea of the time period to expect a reversal.

I would also like to mention here that the delta phenomenon is one of those market timing techniques that can be incorporated with any trading system, and it’s definitely worth looking into further if you’re interested in increasing both profitability and accuracy in your forex trading system.

Conclusion

It is up to you which market timing techniques you choose to use in your trading system.
However you should be able to add an extra layer of both confidence and accuracy, by incorporating the use of any of these four market timing techniques in your own forex trading system.

Discover alternatives to using common lagging technical indicators to add both profitability and accuracy to your own forex trading system.

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