Voices in Finance » forex trading

When Uncertainty Prevails, Seek the Wisdom from One That Has Earned It

Mike — Mon, 06 Dec 2010 09:57:35 +0000

This is a guest post from Tom Cleveland

In eras long past when the future was highly uncertain, the masses would seek out the scions of their day for enlightenment. The Oracle of Delphi comes to mind, but in these turbulent economic times we need not seek counsel from the strange interpretations of resident priests. Instead, we can prevail upon the wisdom of a few selected market professionals that have accumulated years of experience and a positive track record in their market-based predictions. Jeremy Grantham is just such an individual.

Mr. Grantham is one of our esteemed, elder statesmen, investor, and Chairman of the Board of Grantham Mayo Van Otterloo (GMO), a Boston-based asset management firm with over $100 billion in management. He and his firm have correctly forewarned others about no less than 34 asset bubbles that have transpired over the past several decades. He predicted the Internet crash two months before its collapse and warned investors about the most recent recession and real estate market debacle. In a recent interview with a popular cable commentator, Mr. Grantham shared his current thoughts on the state of global markets.

Here is a summary of a few of his more salient insights:

The Fed’s $600 Billion Quantitative Easing Program: The Fed should be in the business of destroying asset bubbles before they form, not creating them from the outset. Their proposed program worries him the most since it will weaken the Dollar and threaten currency wars across the globe. It will be difficult to accuse the Chinese of manipulating their currency while we are manipulating ours. Commodities have skyrocketed, an obvious bubble, and stocks are overvalued, another “boom and bust” cycle in the making;
What is going on with commodities? The simple fact is that there are not enough of them to go around. The hard metals, like Gold, Silver, Copper, and Palladium have witnessed steep run-ups that are unsustainable, an indication that the global economy is in recovery. However, the run-ups in the soft commodities, cotton, corn, rice, and wheat, have also gone through the roof. A weakening dollar only makes a bad situation worse, bordering on disaster. Currency manipulation is just another form of tariff;
What about Emerging Markets: Mr. Grantham began advising investors back in 2000 to invest in the developing world. The value appreciation over the past seven years has been 3.3 times that of the S&P 500 Index, and there may be a few more good years to go. The developed world is mired in 2% growth targets while developing countries are in the 6% plus inflation range. Population demographics favor emerging countries as well;
Are Stocks and Bonds worth buying? Both are overvalued in his estimation. Fair value for the S&P 500 Index is in the 950-range. Old blue-chip stocks that pay regular dividends are cheaper than the rest of the market;
And what of the Dollar? He believes it is a cheap currency at the moment, but if a true currency war erupts around the globe, then anything could happen and forex software may be stressed by the volatility. QE2 and any following programs, coupled with low interest rates, force investors to take risks for their returns. If it leads to increased domestic employment, that is a good thing, but it will redistribute wealth from retirees to the rich that save and spend less, an especially bad idea at the moment.

Currently Mr. Grantham is advising clients to be in cash, with some blue chips and emerging markets, and to be patient. Investment opportunities will come in short order.

Starting to Trade in Forex

Mike — Wed, 20 Oct 2010 11:59:43 +0000

Forex trading, like any other job, has to be studied and practiced first hand in order to earn some real money.
If you are trading for some time now – this advice might help you. Now the expression “for some time” could have a very broad sense in a currency trading context. One trader might have traded profitably for a year and developed his own valuable technique and foreign exchange trading tactics. He could have experienced one or even several margin calls, but if he practiced in a demo account version – he did not loose anything, just gained some knowledge.

Yet another unsuccessful trader might be still experiencing some losses. Actually, he could never have the skill to participate in foreign exchange business. You might be the person who must avoid this venture at all costs, because of your psychological and mathematical incapability. Forex market will never let you know if you fail today, the next day or even for the whole month. If this exact thought frightens you, I believe you’d better find another job, where you know exactly what you will get for your tough labor. If you want to be sure how much you will earn per hour – foreign exchange trading is not for you. Moreover, if you are very sensitive and you mourn over some small things like few bucks’ loss, I would not suggest trading in foreign exchange business or making any other risky financial investment. Emotions are the least thing you will need in forex.

If you have traded enough or for some time, you must have developed some kind of effective currency trading technique, which covers fundamental or technical analysis, indicators, chart patterns and so on.
Development and usage of trading strategy should take at least half a year. The longer period is – the better. Forex trends may completely change in a year, or even years. New strong currency tendencies emerge, requiring completely different approach, for instance flat price movement might take up the same time period as past trend, and consequently it could whipsaw every trend trader. It’s good if you have developed this kind of trading technique that proved itself in the long run. If you apply breakout plan – you will be lucky enter an early uptrend or downtrend and earn a few pips. What if there is no trend? The currency pair could move in a range for several weeks, and you could be trying to apply some breakout technique. You could enter your loosing trades 5 times in a row, just because the currency pair breached the resistance line and reversed taking out your stop losses. You have to know forex trend changes and this experience comes slowly, with time.

Long term profitable strategy is a must. If you trade profitably in your practice account, no matter what market conditions are – you can transfer little money and trade in a real account. However, it will be harder to make trade decisions, once the money are yours. Stress and pressure will be your constant companions and the sooner you learn to manage your emotional issues the better.

I have been trading in forex market for about 5 years now. If you are looking for some more guidance, my forex trade signals might help. For those who do not have time to trade, I suggest using managed forex trading

Forex Trading Tips

J. Hamilton Fraser — Mon, 24 May 2010 18:03:56 +0000

The forex is a huge market, with a daily dollar volume in the trillions. As a matter of fact, it’s the largest financial market in the world. The amount of money you, as an individual retail investor, can use can be a bit overwhelming if you don’t know what you’re doing, so here are some basic Forex trading tips.

Don’t get taken in by scams. The forex market is not a get rich quick scheme in and of itself, however there are so many scams surrounding the forex that Wikipedia has an entire page dedicated to them. This is caused by the low cost of entry for Forex combined with high leverage, and the genuine potential to make a lot of money. The problem is that these scams fail to mention the overwhelming odds of failure especially if you make full use of your available leverage. You are much more likely to wind up broke and owing your broker money, than even being profitable, let along getting rich. Don’t pay someone to tell you how to trade the Forex; there is plenty of free information available.

Start small and slowly. When you open your forex account, be sure to elect for the ability to trade mini lots. Mini lots are smaller sized lots (only $10,000 as opposed to $100,000) that will minimize your risk and losses. It also limits your profits, but if you can’t be profitable trading for $1 pips, what makes you think you can be profitable trading each pip at $10? Establish a method, and understand your own risk tolerances and abilities before you scale into full-sized positions. This will ensure that you remain profitable for the long-term.

Study and work hard and the profits will follow. Contrary to what the scammers want you to believe, you can’t simply set some automated program up and make a bunch of money. Successful trading and investing requires a lot study, patience and work. You’re going to have to delve deeper than the simple currency trading tips found here. Understand the currency market as a whole, and learn your chosen currency pair or pairs inside and out. Know what world events affect your pairs, and more importantly, how to trade off of such events. This is going to take quite sometime, sometimes years, but it will pay off.

Forex trading takes a lot of work and studying to become successful, but if you stick with it, it can be quite lucrative. The great thing about the forex market is that it’s infinitely scalable due to the immense liquidity of the market. This means as your account grows, so will your profits, and this potential is limitless. The trick is taking these starting forex trading tips, then going above and beyond to really learn what you’re doing. Take your time, really learn the Forex, and the profits will follow.

Managing Your Mental Capacity As A Trader

J. Hamilton Fraser — Thu, 20 May 2010 06:44:08 +0000

Every trader has a mental capacity. Trading is mentally and emotionally very intense, and every trader needs to know and stay within their limits. Many in the securities trading world understands that successful traders exhibit the same qualities as elite athletes.

Their focus is extraordinarily strong, they understand how to hand rigorous mentally and emotionally draining activities, and they are determined to win at the end. And most importantly, they know how to get back up after they fall to rise above the rest.

Here are some ways to stay sane as you do your trading on a daily basis.

First recognize that we all have mental limits. There is only so much intense activity that we can do on an optimal level at a time. So understand where your limits are and know when to quit when you begin to lose your sharp edge.

Secondly, keep things very simple. Too many traders try to use very complex and hard to understand and execute strategies and systems for their trading. The underlying strategy might be good. But in the heat of battle, a complex strategy that is supposed to work maybe failed to be executed well enough to succeed. So keep this matra of KISS: keep it simple stupid.

If you can keep your strategy simple, you have the best changes to executing it well. In addition, you have the added benefit of it not killing you to execute on a daily basis. You need a trading strategy and system that is sustainable over the long term.

If you’re strategy makes you exhausted after every trade, then it’ll probably not be sustainable and you won’t be able to manage it. If you’re going to do this forex investment game, you want to stay alive for the long haul.

So, again, keep it simple. Trade only one or two trading pairs at a time. If you do trade two currency pairs, make sure they talk to each other. What I mean is that make sure they are related somehow.

For example, if you think the AUD/USD will somehow affect the CAD/EUR for whatever reason, that’s a good reason to trade both. But if they are significantly mutually exclusive at any given time, it may not be smart to have to mental tracks at one time.

Lastly, practice. The reason an elite athlete can handle and overcome in the intensity of the moment is because they practiced and built up their tolerance and expanded their limitations. If you haven’t already, get a forex demo account to practice before you start. It may not be the same thing as trading real cash, but that doesn’t stop the athlete from getting up at 5am to run 5 miles everyday.

How to Make Money With Electronic Currency Trading

J. Hamilton Fraser — Sat, 13 Feb 2010 09:37:08 +0000

Electronic currency trading simply means selling and buying currencies online; basically anyone with a computer with Internet access is able to actively busy and sell currencies.

Making money with electronic currency trading is possible but many individuals believe it is very easy since it is not very hard to start trading online. The first thing a potential trader must do is to find an online Forex broker. Many tools and resources can be found with most online brokers, the majority will provide the potential Forex traders with a demo account to learn about the basic fundamentals of currency trading.

Practicing with a demo account is the first critical step to take before using real money. Unfortunately many traders only practice a few days, or a few months and realize their mistake when they start losing money. The advantage of a demo account is that it is just like a real forex account. Forex traders have all the tools and resources available with a demo account such as a trading platform with real time trading, signals, indicators, charts, and even news that can help on making decisions about a particular trade.

Developing a strategy is very important if anyone wants to be successful with currency trading, there are many situations that could arise and traders must be ready to make decisions that could potentially generate profits or loses depending on the knowledge and tools being used.

The reason training is very important is the fact that the Foreign Exchange Market is very volatile and changes in prices can happen in a matter of seconds. One must be ready to anticipate changes in order to make profits. Many will say making money with currency trading is all about following the trend, that is partially correct but the use of signals and indicators on the chart will greatly enhance the potential for profits.

There are ways to make money with electronic currency trading. It requires training and the will to stay consistent and also one must have discipline to make sure calculated risks will be taken in order to increase profits.

Discover the benefits of the No Dealing Desk Forex Trading and avoid the conflict of interest between broker and trader.

How to Trade the Forex

J. Hamilton Fraser — Sun, 07 Feb 2010 21:16:53 +0000

Trading the foreign exchange market is in many ways different to trading the stock market. But, it is also a lot the same. The basic things important for trading on the stock exchange market are also very important for forex traders.

The most important error when trading is the lack of discipline. If you are trading, you have to make a plan for your trading and most important – you have to stick to it. If you make a plan and when it really gets hot, you leave your plan and react solely on emotions you will most probably lose your money. This is a very common error done by traders. The more experience you have as a trader, the less probable is the chance of making this error.

Next to the plan, it is also important to have a system for trading. A trading system takes away emotions from trading. This is good since emotions often give you the false response. A solid forex trading system can really help you a lot in the quest of becoming a profitable forex trader.

If you are persistent in the search for new information and knowledge about trading, you might be lucky and find some forex trading system secrets. It is probably easier to find such “secrets” through discussions with other traders than through other methods. Other traders, especially the very advanced or very experienced are a gold mine of information that can help you become a better trader.

If you are day trading the forex or if you are acting on a longer time frame doesn’t matter when it comes to those three important points on trading. A day trader needs a system and a plan exactly as does the person trading on much longer time frames. And the information gathering is as important for the day trader as for everybody else. The more information you have and the more discipline you have, the better you will trade.

Forex Trading Systems

Mike — Wed, 18 Nov 2009 14:45:28 +0000

Trading novices oftem come to the forex markes with a variety of questions. Many of these questions related to forex trading systems. What are they, who uses them, are they profitable, etc.

What is a Forex Trading System?

It’s quite a general term that encompasses a wide range of things. But basically, a forex trading system is generally considered to be something that automacally generates signals telling you when to buy and when to sell certain currency combinations. The more sophisticated applications will actually route your orders to the market directly. These are often referred to as “forex robots”.

Where to Find Them

You generally have a choice of buying a system that will work independantly, regardless of who your broker forex account is with (typically an application you install on your PC), or using the sytem your broker provided to you when you set up your account (typically a browser-based application). The first option can give you more flexibilty, whereas the second option doesn’t cost you anything and can give you ease-of-use.

Setting Up the System

Configuring the system to cater for your own trading profile is usually a fairly simple task, although the more complex systems require more in the way of set-up and configuration. You will choose which markets you want to follow and which indicators and signals you want to use (weighted moving averages for example). Many of these systems are “set and forget”, so you will want to ensure that you set everything up correctly.

Can they Make Money?

That’s debatable. I would argue that it’s not the system that actually makes or loses money, it is the trader. The system is just a tool. If you use it correctly and trade with discipline, then a good forex trading system will certainly help you to make money. But what will help a lot more is experience and insight!

Forex Trading Strategies

Mike — Wed, 18 Nov 2009 14:29:26 +0000

There are many forex trading strategies that are used by different traders in different circumstances. If you are a novice trader, this can all seem quite confusing, but it doesn’t have to be that way. There are some simple strategies that you can get started with and there are more complex strategies that you can try once you’ve got a bit more experience. So don’t sweat it, everything will become clear in time!

What kind of trader do you want to be?

It can all be a bit overwhelming, so what is the best place to start? Well, how active do you want to be? Do you think you would prefer to open a position and hold on to it for a while before closing it out again, or does the thought of holding a position for a long period fill you with dread? Maybe you like the idea of having all your positions squared off at the end of the day so that you can sleep soundly in your bed without having to worry that the position might be moving against you! Or maybe you like the idea of scalping the market, quickly dipping in and out with small (hopefully profitable!) trades?

Long -Term Strategies

Photo by OptionsHouseFor the long-temr trader, the best kind of forex trading strategies are those that enable you to follow a trend. Trending markets are great for buy-and-hold for example. You just open your position at the start of the trend, hold on to it as long as the price is moving in your general direction, and close out the position once the trend appears to have come to an end.

Day Trading Strategies

These are less risky in some ways, because there is no need to hold a position overnight, everything is squared out at the end of the day.

Make sure you find the right forex trading strategy to suit your personality and don’t risk it if you can’t afford to lose it!

Forex Futures

Mike — Wed, 18 Nov 2009 14:14:40 +0000

If you want to trade the forx markets, there are various ways you can do it. You don’t have to stick with the traditional cash market, for example. Instead, you can trade inthe Forex Futures market.

What are Forex Futures?

Forex Futures offer a more standardized way of trading than the cash markets. They are traded in specific “lot” sizes, on a regulated exchange, the largest of which is the CME (Chicago Mercantile Exchange). Unlike the cash forex market, which is traded round-the-clock, forex futures are traded during fixed sessions. All transactions are cleared by a central counterparty (the exchange clearing house) and instead of being traded at “spot” (i.e. the cash price right now), they are traded at the price the currency combination is expected to settle at on the fixed settlement date in the future.

Regulated Market

Photo by delrandallForex futures trading is more heavily regulated than cash trading. The exchange sets all the rules regarding settlement, contract sizes (i.e. lot sizes), trading hours and deposits or margins

Deposits and Margins

Forex futures are highly leveraged instruments, which means that when you trade, what you are actually buying or selling is the promise to deliver a certain amount of a certain currency at a certain time in the future. Because these amounts can be quite big, you need to pay a deposit (or Initial Margin) when opening a trade. As long as you hold your postion open, if the price moves against you, you have to “top-up” this deposit by paying variation margin, or maintenance margin, to ensure you are covered against future adverse movements.

Leverage

If the price moves in your favor, you can make a lot more with forex futures than you can on the cash markets. The downside of this is that if the price goes in the opposite direction, you stand to lose a lot more. So never risk more than you can afford to lose!

Forex Online System Trading

Mike — Wed, 18 Nov 2009 13:50:16 +0000

Until a few years ago, trading in the forex markets would involve picking up a telephone to speak to your broker, or sending a fax with your order details. It was a slow and error-strewn process. The growth in forex online system trading has changed all that.

Direct access to the markets

Gone are the days where international banks and trading institutions have a massive advantage over individual traders because of their direct access to counterparites. Of course, banks still have a number of advantages over individual investors (not least the fact that, because the bank is quoting the spread, it will always be able to buy a few pips lower and sell a few pips higher than you can). But direct access to the markets is fortunately now not one of them. Anyone with a PC and broadband access to the Internet can get instant quotes and can trade off those quotes.

What else do you need to trade?

Photo by VlastulaAside from the PC (or Mac) and Internet Access, there’s not much else you need to trade, except for some ready cash of course! Because it is extremely easy to lose money in the forex markets, make sure that any money you are trading with is cash that you can afford to lose!

Broker Forex Accounts

You will need a forex trading account with an established broker to gain access to the forex markets. There are many brokers and banks who offer a wide variety of services, so shop around for the best deal.

Trading Software

When you set up your account, Most brokers will provide you with access to some sort of online trading system. This might be browser-based, or it could be an application that you need to download and install on your PC

Paper Trading

Before you start to do any forex online system trading with real money, it is always a good idea to “paper trade” for a while first, just to familiarise yourself with the system and with the markets.