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Establishing a Forex trading system is crucial if you want to make steady profit in the market. What you should understand however is that there is no ‘perfect’ system available today. Thanks to the volatility of the market, every trader generates profit differently. The good news is that for the most part, all of them make use of the same basics when generating their Forex trading system:

Technical Analysis

Most traders lean on technical analysis when it comes to system formulation. As the name suggests, it takes into account different technical tools supported by statistics, numbers, trends, charts, graphs, and various other quantitative data.

A pretty common factor utilized in systems would be the ‘trend following’ which essentially finds patterns or trends overtime. For example, traders may find that during certain times of the year, a particular currency enjoys a steady rise before dropping back again at the start of a specific month.

Technical analysis also includes the use and comparison of GDP, price index, demand and supply, and even the political situation of a country to fully comprehend how the currency will fare for the next trading session or overtime.

Fundamental Analysis

As opposed to technical, fundamental analysis takes into account other factors that are equally logical. For the most part however, fundamentals focus on supply and demand as the primary driving factors of the Forex market.

This system also puts weight on a sentiment-driven market. This refers to the ‘mood’ of the big investors when it comes to the market. Hence, if the big fish are leaning towards are a particular currency, then this significantly affects the ‘supply and demand’ of the said currency, thereby affecting how the Forex market stands. The ‘mood’ is the sentiment of the majority of investors to which a private investor must look at to ascertain their next move.

Long Term and Short Term

Now the question is: do both techniques apply for short-term and long-term trading? The answer is: yes. It doesn’t matter if you’re a day trader or there for the long haul – technical and fundamental analysis remain relevant factors in the process.

The best Forex trading system however,would be a combination of technical and fundamental analysis with more attention given to the former. Although Fundamental Analysis has been proven to work, the statistics offered by Technical tends to produce better and more accurate results overtime. The good news is that in some instances, these two analysis options overlap, which should make your trading process easier.

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According to many fundamental analysts, fundamental analysis is a time-consuming process. In fact, in the 90s, when computers and automation started becoming common tools, the analysis approach’s popularity began to dwindle. To keep up with the fast-paced demands of the foreign exchange market in the modern world, the traditional method seemed like it needed to go. However, since its usefulness remains, tech-savvy fundamental analysts determined a way to improve the elaborate analysis approach; they designed fundamental analysis software.

Fundamental Analysis 101

Fundamental analysis refers to the state of the forex market with regard to the overall economic conditions; it gives light to factors such as economic production, interest rates, employment, and GDP (or Gross Domestic Product). Its findings are based on data that comes from historical and present-day reports. As the process revolves around the evaluation of market performance, it adheres to the primary goal of yielding informative predictions.

Typical Features of Fundamental Analysis Software

An advantage of the employment of fundamental analysis software is that it addresses the fact that the forex market can be an extremely volatile market; it comes with a myriad of useful features to give light to market volatility. With its design, accomplishing basic and advanced fundamental analysis procedures is possible.

Features include:

  • Automatic order execution – also called OCO (or One Cancels Other) or OCA (or One Cancels All); it allows the placement of 2 orders (i.e. a sell limit order and a buy limit order) and automatically cancels one after an initial order execution
  • Back-testing methods – enables forex traders to attempt their odds in a hypothetical market; traders can test the usefulness of strategies and algorithms
  • Built-in and custom trading strategies – includes validated trading strategies, as well as those that are in need of trader input
  • Data feed – includes a variety of data feeds; it enables the benefits of relying on real–time data, delayed data, and EOD (or End of Day) data
  • Informers – includes regarding the availability of significant economic data

Calendar as a Fundamental Analyst’s Tool

An important component of fundamental analysis software is its feature of a forex calendar. It can provide necessary details regarding events, time, previous, expected, and actual currency values, as well as influenced currencies. It enables a trader to perform analysis according to a selected time zone; particularly, it privileges a trader to peek at a list of upcoming economic events, which ultimately rewards him with the opportunity of strategizing prior to his entry in the forex market.

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Focus on One Currency Pair (guest article)

When it comes to forex trading, specialization and not diversification is the key to success. While it may seem that by focusing on a single pair you are putting all your eggs in one basket, in fact, you are actually increasing your chances of success. Successfully trading currencies requires a lot of analysis of the market, and it is easier to do that by completely familiarizing yourself with a single pair so that you can more readily identify trading opportunities.

What are the benefits of focusing on a single pair? You can more readily study the economies those currencies come from so that you can better understand the fundamental factors that affect their values. It is also important to understand that just because a currency pair shares a currency with another pair does not mean that they will behave in the same way. For example, the USD/EUR will behave differently from the USD/JPY even though they both include the US dollar. Other characteristics of currency pairs that you need to keep in mind is that they behave differently at different times of the trading day and their values move at different speeds.

In addition, by studying a single pair, you will be able to observe how its values change over time. This can give you greater insight into how it will react in the present under particular political and economic developments. This may allow you to identify trading opportunities that other traders with less knowledge and experience may not see.

Of course, there are traders who would argue the opposite position, that by focusing on a single pair they are actually limiting their profit opportunities. But if you are just starting out as a forex trader and still learning the basics, you are better off focusing on a single pair rather than trying to study several pairs at once.

How do you choose which currency pair to specialize in when you’re starting out? Here are some suggestions.

Choose a major pair that is traded a lot. These include those that have the US dollar as one of the pairs (USD/JPY, EUR/USD, USD/CHF). The main advantage of trading one of these pairs is that they enjoy a lot of liquidity and have a lot of volatility. This means that they generate strong trading signals that you can easily detect to open a trade.

Choose a pair that includes your home country’s currency. Since you will essentially have to study the economies of two countries when you focus on a pair, you can make your job easier since you already understand how the economy of your own country works. You also have a greater understanding of the factors that affect the values of your own currency.

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Let’s say you want to gauge the effectiveness of a nation’s monetary policy in relation to the exchange rates of particular currencies.

A way of achieving this is to take into account the amount of monetary supplies that are about to go into circulation. Since it can be laborious (and also, there’s a big chance of inaccurate findings) to determine the supplies according to your own reports, bringing in an economic indicator is a wise tactic.

In such a case, the particular economic indicator to turn to is the Monetary Model.

What Is the Monetary Model?

The Monetary Model is an economic indicator that highlights the role of a country’s monetary policy in the establishment of currency exchange rates; it draws light on the monetary supplies of current trading accounts and how they can impact the foreign exchange market. To have a clue as to why rates are too high or too low, and why they can sometimes rise and drop unexpectedly, grasping the concept behind the theory is a technique.

Theory Basis

The Monetary Model is just like many economic indicators; although it provides valuable information, it presents conflicting aspects. For instance, it goes against a statement of another economic indicator, the Asset Market Model; while the Monetary Model revolves around the reports on current trading accounts, the Asset Market Model gives importance to capital trading accounts.

Particularly, the Monetary Model is based on 2 things: (1) the need for perfect market and economic conditions, and (2) the assumption that comes from economic theorists.

The Arguments

According to different economic theorists, the Monetary Model comes with a downside; it has certain restrictions that may not make it suitable for just any market condition. One restriction, in particular, is that it lacks consideration for incoming trade flows.

In a way, the Monetary Model vouches for the immediate depreciation of a currency due to a potential raise in inflation rates. While this supposition is true, a reverse situation is also true; this negates the whole arrangement, and gives the economic indicator a questionable credibility.

Due to such a limitation, the Monetary Model can put a trader at risk. He may have a report of monetary supplies, but not in a generic perspective; it means that, although he can analyze market and economic conditions, there may be integral components that he remains uninformed of.

So, Is the Monetary Model a Good Indicator?

Overall, yes, the Monetary Model is a good indicator; it is reliable and can yield profitable results. It can trigger inaccurate predictions due to incorrect employment, but just like most technical analysis tools, its effectiveness can be fine-tuned with brilliant trading strategies and flawless money management skills. And, if another set of indicators enter the picture, there’s more than 50% chance of establishing strong positions in the forex market.

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Okay time to get into the trading…..

Overkill for the average Retail Forex Trader?

Overkill for the average Retail Forex Trader?

To date, I have explained what Forex is all about so you should have a pretty good idea on the basics. It is now a matter of getting your hands dirty by actually doing a bit of trading. As mentioned earlier, there are plenty of brokers out there that offer you the chance to demo trade. This is a great idea, but please don’t be fooled into thinking that you can replicate your demo trading into your live trading without missing a beat. It is just not possible! What I would suggest is that you open a live account that allows you to enter with micro lots (1 pip = 10c), so at least you are trading with real money. Not much I know, but enough to keep you interested. Anyone can successfully trade a demo account as there is just no actual risk or emotions involved.

As you have probably guessed by now, I am a technical trader, which means I look at the charts to determine my trade entries etc. I don’t trade the news, simply because I don’t understand it, but I am very aware of when major news is being released.

When I say I trade off the charts, it basically means I am using technical analysis. I like the whole visual thing with charts. Now there are probably thousands of technical indicators and trading methods out there. They are everywhere. Just look in any of the big Forex trading forums, and you will find plenty of free information on all sorts of methods on trading from tick charts to the monthly charts. There is bucket loads of information. Some good, but most of it is rubbish.

You have to remember, what may work well for one trader, may not work at all for another. Also, you may have two traders trading the EUR/USD. Trader A may be long, and Trader B may be short. Now naturally you would think that one of them must be wrong, but what if Trader A was trading off a 1 minute chart and Trader B was trading off a daily chart, then it is quite possible that both of them are correct in their analysis (or both maybe wrong). Different horses for different courses.

There are so many technical indicators out there that it would be difficult for me to cover them all. I am aware of a lot of them, having tried most of them out. I know pretty quickly whether something works for me or not. I do have my favorite indicators, and I have ones that I have no idea of how anyone works them out.

One thing I must say is that about 99% of technical indicators are lagging indicators. That is, they only really move after the market moves, and their position is only obvious after the market’s position is obvious. Anyone can look at the history (left hand side) of a chart and see some beautiful moves based on an indicator of your choice. That hindsight is a great tool! I figure all I need is a time machine that puts me about 1hr into the future and then lookout Forex. Getting a bit silly now, but you can see what I mean. When you are trading live using your indicators and watching the very far right of your chart (the current price), you only have an opinion of which way price is going to move next, as you do not know for certain which way it will go. Nobody does! All technical indicators do are giving you a higher probability of something happening in a particular direction based on your interpretation of the indicator/s at the time.

They say a lot of technical indicators are self fulfilling. I hope I spelt that right. What I mean by this is that a lot of traders use the same indicators and therefore expect the same thing to happen at a particular point. An example would be using Pivot Points. The price is heading up towards the R1 (1st resistance level), hits it briefly and bounces back down. Was it the actual R1 level that stopped price or was it the case where many traders knew about this level and set sell orders at that level, forcing price to bounce down off it? Who knows? The same applies to popular Moving Averages like the 50 or 200, also Fib Levels, Bolinger Bands etc.

One thing you have to keep in mind, and that is, PRICE IS KING. Period! You can have all the indicators in the world on your chart, with all the planets aligned, where you think 100% that price is going in a certain direction, only to see the exact opposite. There is no certainty in trading, so you have to be prepared for the worst at all times. PRICE IS KING!

As a trader, I much prefer to open a trade in the direction of the market at the time, or to say it another way, go with the trend. Now some traders will prefer to look for turning points, where they will trade the opposite direction to the current trend. Go back to my above example of the Pivot Points with price approaching the R1 level. I would be more inclined to ride the trade up to that level and look at getting out near that level if I had been long, where as another trader may have placed an order to sell at the R1 level, looking for that bounce down even though price may have been heading up there for the last few hours. There is nothing to say that the market will stop and reverse at that R1 level, as it may continue right through without skipping a beat. I still can’t wrap my head around looking for turning points, but it has proved quite successful for other traders.

I have seen quite a few different systems over the years, and have come to appreciate the amount of effort and imagination that goes into some of them. A lot of these are done by taking a standard indicator or idea, and slightly twisting it a bit so you aren’t doing what everyone else is doing. The trick is finding something that works for you.

I use technical indicators, and I look at both short term and long term trading. Sometimes I like to be done for the day quickly and other times, I have no problems being constantly in the market. If I had a choice, I would much prefer to trade the longer time frames just to cut out the noise. Also I don’t want to be sitting at my computer for hours on end, but then again, I enjoy the thrill of the chase. Sometimes waiting for set ups on the longer time frames gets a bit boring for me as I like a bit more action. I guess I have to find a balance like everyone else, hence the reason I have two accounts to cover both types of trading. The beauty of day trading is that who cares if you miss a day or two, as it doesn’t really matter, but if you are trading the bigger time frames, you are pretty well committed to the markets.

At least open a free demo account and dip your toes in the water.  Get a good feel for the platform of your choice, so when you do use real money, you only have to think about actual decisions and not platform issues.  Enjoy 🙂

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Below is a guest post from Mr. Zahir from MTrading India.  It is good to get other people’s explanation of trading Forex, which may give the reader a better understanding coming from a slightly different angle.  Enjoy!

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Basically, you can trade in the forex market via 3 ways: the forwards market, futures market, and spot market, with the spot market being the largest among the three. For one, the underlying asset that futures and forwards trading are based on the spot market assets.

The futures market used to be the most popular market in the past simply because of the fact that it had been made available to individual traders for a long time – before individual investors gained access to the spot market. However, with the advent of electronic or online trading, the spot market experienced a sudden surge in popularity, particularly with speculators and individual investors. In no time, it surpassed the other markets in terms of size and popularity.

The Spot Market

Simply put, this is the market where you can buy and sell currencies based on the prevailing rates, which are dictated by supply and demand. Various factors, in turn, affect supply and demand including the current political climate (both locally and internationally), economic performance, interest rates, and a particular currency’s expected performance against another.

A finalized transaction is called a “spot deal,” a bilateral deal whereby one party delivers the agreed amount of currency to another, and in turn receives the corresponding amount in the counter currency based on the agreed exchange rate. Positions are closed with cash settlements. While the transactions are generally considered as current or in the present time, the actual settlements can take up to two days.

The Forwards Market and the Futures Market

The futures and forwards markets, unlike the spot market where actual currencies are traded, involve contracts between two parties representing claims to a specific currency. The currency is stated at a given unit price that is to be settled at a future agreed date.

Forwards contracts are sold and bought over the counter, with the terms determined by the contracting parties. On the other hand, a futures contract is sold and bought based on standard sizes and settlement dates. Transactions are regulated by the National Futures Association.

Futures market contracts contain specific details such as the number of traded units, settlement and delivery dates, and the fixed minimum price increments. The exchange serves as the trader’s counterpart that provides clearance and settlement.

Both forwards and futures contracts are binding and closed with cash settlements upon maturity, although a contract may be sold or bought before its expiry date.

Both types of contract can provide some form of risk protection in currency trading. In many cases, the futures and forwards markets are used by large international companies as a hedge against fluctuations in future currency exchange rates. There are cases, however, when speculators trade in these markets too.

Reference: Author of the article is Mr. Zahir from MTrading India

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Most traders start off in this business from, what most people would consider a normal background. By this I mean that you would have a normal job where you are required to work 38, 40, 50 or whatever hours a week. At the end of the week, you receive your pay check, knowing that for every hour you have worked, you have earned $25 (example only). So you have this psych built into you that states you have to work your 40hr week to be entitled to your $1000 pay check. I’m just talking about Mr or Mrs Average here.

Now with trading, things are a little different, and it does take a little getting used to. Now we all know that traders trade in a variety of ways on a variety of different time frames, with different objectives in mind.

Forex Trading can be stressful at times..

Forex Trading can be stressful at times..

So first up we’ll go back to my Day Trader example, where I was chasing the 20 pips a day scenario. Say I started trading at 2pm local, and had achieved my 20 pips by 2.30pm local. This does happen quite a bit. So it has taken me 30 minutes to hit my daily target. Now what? The smart and the disciplined thing to do would be to shut down your trading platform and walk away. What do you think most traders will actually do? They think, well that only took me 30 minutes to hit my target, so imagine what I can achieve in a few hours. I have to justify my profits with some effort! Guaranteed the next trade will be a loser. Then you have the problem of chasing your tail for the next few hours just trying to get back to the 20 pip target. At least you will get your 8 hours trading, and still end up with the same result. I use to do this a lot as I was a bit of a slow learner, but now, as soon as I hit my target, stops are brought in real tight to lock it in, and if the market just continues in a favorable direction, then good luck to me, but once I’m stopped out, I won’t enter another trade. Walk away.

Another example I experienced, was trading with a group off the 60 minute charts where we were in the market at all times. Basically your position had to be checked at the top of every hour. We were trading 3 pairs and our overall target was +200 pips for the week. Once we achieved the 200 pips, we called it quits and then waited for the following Monday. As you can imagine, monitoring 3 pairs every hour can lead to sleep deprivation, marriage breakdowns, lack of social life etc, but the good news was, that most weeks we were finished by Tuesday evening. So we started Monday morning and done by Tuesday evening, with our 200 pips safely in the bank. It was very tempting to continue trading for the rest of the week to go for the big kill, and initially we use to do this, and like the 20 pip a day example, we would end up losing a few trades dragging us back to where we started on the Monday. There was the odd the week, where had to work right through just to get us to the target (or close as possible) and they weren’t pleasant at all. On a good week, we would only enter a couple of trades and be done within a few hours. You don’t realize just how hard it is to sit on your hands for the rest of the week.

Probably what I am getting at here, just because it only took you a few minutes or hours to earn what you would normally earn in a day or a week, don’t think you have to justify chasing more trades to account for your time. One of the main reasons we all get into this, are for financial rewards and time to enjoy those financial rewards. Try to avoid the greed factor and just concentrate on taking small consistent profits over time without wearing yourself out. Once you can achieve this, then it is just a matter of letting the power of compounding do its thing. It may be slow going at first and you think it will take forever to achieve any real significant returns, but once it cranks up like the snowball example, you will be rolling in it.

Looking for 20 pips on a $1,000 account is exactly the same as chasing 20 pips on a $500,000 account as long as your risk percentage remains constant. It is only the mind that plays tricks on you when you start dealing in bigger numbers. If you are not use to the big numbers, then it is sometimes a little difficult to wrap your head around them. The plan is to build up slowly but surely, and when you get to a level you are comfortable with, then it may be a good idea to start enjoying your profits and reinvesting monies into other ventures such as charities, education, family or even a pretty Astin Martin. Whatever floats your boat.

Okay, that’s enough of the deep and boring, albeit very important, stuff. The next chapters will go into a few trading ideas and where we can find these ideas, which should be a little more exciting. But please be very aware of fear and greed and how it can affect your trading!

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forex-trading-psychologyNow here is a subject that you love to hate!

Even though a lot of people will just gloss over this and think it is really not an issue in their trading, they couldn’t be further from the truth.

It is important, and it is important to know how it affects your trading. The majority of the human race has emotions and these emotions certainly come into play when you have some real hard earned cash on the line. I’m sure if you have been a trading for a while, you would have experienced a variety of different emotions, some good and some not so good. I know I have.

I’m not sure where the figures come from, but they state that 90-95% of traders fail! I guess there is some truth in that, as if it was that easy, we’d all be doing it and making a killing. No one would have to work, and if that was the case, we wouldn’t have any financial markets to trade. The success rate is low. So what makes you think you can be one of the 5-10% that can make a go of this trading game? I’m not just talking about Forex here; I’m talking about all trading.

Now, in my humble opinion, I believe ‘Fear’ and ‘Greed’ to be the main culprits that hold us back from achieving our dreams. They are pretty much the same thing. The way I look at it is that you are fearful of losing out on the big move, so you stay in the trade, or you are greedy and want everything from a trade, so again, you stay in the trade.

Let’s have a look at a simple example. Let’s say we are looking at the 5 minute chart on the EUR/USD. It is normally a chart that has a fair bit of action, moving up and down throughout the day. Now the market can only do one of three things. It goes up, goes down or goes sideways. Now if you had gone long and bought the EUR/USD, and it heads up, you are a winner. If it goes sideways, you don’t lose anything and if it goes down, you lose. So to keep things simple here, you have a 33% chance of losing money, which means you have a 66% of not losing money.

Okay I’m assuming that before you bought the EUR/USD, you thought that it was going to go up according to the rules of your trading system. It doesn’t matter what method you use to trade, as there are thousands to choose from, which in your eyes will give you a higher probability of the trade moving in your preferred direction.

This is way too easy as we have a 66% chance of not losing and we have a method that puts the odds well and truly in our favor to choose the correct market direction. Why is this so hard?

Human emotions make it hard. Simple as that!  As soon as you enter, any of those three directions can happen, keeping in mind the market rarely moves in a straight line.  Just because it looks like the perfect buy set up at the time, this may not be the case where you actually bought at the exact high for the day.  This happens and the mind games begin.

One of my favorite sayings, which I say aloud to myself several times a day, is ‘Patience, courage and discipline’. This mainly refers to my trading, but I guess you could apply it to a lot of everyday events in your daily life.

Patience is pretty obvious. You wait for the correct signal to enter a trade, or exit for that matter. Don’t be afraid of missing out on a trade as there will be another potential opportunity sooner than later. If you are in doubt, stay out. Sure you may miss some nice moves every now and then, but so be it. You can’t expect to catch every trade or every market move.

Courage probably refers more to have conviction in your trading method and following it through both good and bad times. You know the system works as you have tested it and tested it again. You stick with the plan and see each trade through to the end.

Discipline, I think is the whole package. You have a tested trading method and you have certain rules within this method. You have to be disciplined to follow the rules to the letter. Without discipline, you will be tempted to change the rules mid stream, which will further confuse the emotions and lead to further problems.

They are all pretty similar and certainly tie in with each other and can be looked at as a three legged stool. Without one of the legs, the stool is useless. That’s how important they all are. This is just my little saying that keeps me focused as they are words I use every day. You may wish to come up with your own way of thinking or dealing with trading psychology.

Makes sense to me!

Makes sense to me!

Here are a few example of how the market plays with your mind. You have just gone long but as soon as you enter the trade, the market falls away, and it appears you have bought right at the top. You then get stopped out to the exact pip, where the market reverses and heads back in the first choice direction, past your original entry point and beyond. This happens all the time, and no, there isn’t some sort of conspiracy by your broker to clean out your stops. This sort of thing will frustrate you, but if the market dropped and came within 1 pip of your stop and then reversed back in your first choice direction, giving you a very successful trade, then you would consider yourself lucky that your stop loss held by one pip. Again, this sort of thing happens all the time. One result will have you feeling like the whole world is against you and the other result will have you feeling like the king of the world.

You may be trading more than one currency pair where you have taken a bit of a hit on one of your trades. You are down 20 pips and you now have a nice trade on another pair. Your rules state that you have a profit target of 15 pips, but because you were down 20 pips on a previous trade, you ignore your rules and go for 20+ pips to make up for your loss. The trade goes well, gets up to +18 pips and then turns around and heads south quickly, stopping you out. Now you are 20 pips down from the previous trade, and also down for whatever this trade cost you. Your emotions are being tested, because if you had followed your rules, you could have taken the 15 pips profit as per your rules, and only been down 5 pips to date. This sort of revenge trading is not recommended as you more times than not, you will dig yourself into a deeper hole.

Look, there are many examples of what can go wrong like removing a stop or even moving a stop further away, adding to losses, ignoring your target, ignoring reversal or exit signals, cutting your profits too early, not concentrating, forgetting about news releases, trading while sick (or drunk), letting your ego decide market direction etc etc etc. There are many reasons why things go wrong, and when they do, your state of mind will be affected in different ways.

There is no simple answer to all these potential problems, you just have to work on your own discipline and work out your own way of dealing with these sorts of issues. Just get use to having losing trades and accept them as they are just a part of the bigger picture. Also get use to seeing potential trades come and go without you being on them. You cannot expect to catch every move in the market. It also an advantage if you can control your own emotions, by treating every trade, whether winner or loser, the same. Trading should be pretty boring anyway and the desired outcome is to be profitable, so it should also be taken pretty seriously. If you want to be profitable, stick with your rules, concentrate and keep your emotions in check.

Remember PATIENCE, COURAGE and DISCIPLINE!

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This is something that may get your attention, as you may be surprised on what little profit is actually required to make a success of Forex trading.

Looks like a great place to trade Forex, but I highly doubt a successful trader would be in this position!

Looks like a great place to trade Forex, but I highly doubt a successful trader would be in this position!

Previously I have spoken about the average daily move of the major pairs like the EUR/USD and the GBP/USD, which is normally around the 80 – 120 pips mark. Remember this is not necessarily from the low to the high or vice versa, as the market may start and finish on the same price in that period. So as you can see, there is normally a fair amount of movement in the day, and therefore plenty of opportunity to grab some of that action.

I don’t know what your lifestyle is like or what you would consider to be a decent income from trading to maintain your present lifestyle, so let’s just talk in general terms.

You are an average Monday to Friday worker, and maybe work the odd Saturday. That’s typical here in Australia. Your wage maybe in the vicinity of AU $800 – $1000 per week. So we are looking at roughly a 40hr week plus travel time and expenses etc.

In your spare time after work, you dabble in the world of Forex and you aren’t too bad at it. You trade for a few hours on your $10,000 account, keeping your risk per trade at the 2% mark, keeping your stops nice and tight and lock in profits quickly. After a few hours each night, you can consistently take 20 pips out of the market and then call it quits.

Doesn’t sound like much and it also doesn’t like it would be too hard. Yeh right!

20 pips a day. Now on the $10,000 account with 2% risk and tight stops, trading one (1) standard lot would be quite possible. Remember I generally say that one (1) pip on a standard lot is equal to US$10. If you were trading the EUR, GBP, AUD or NZD, then that would be exact.

Now 20 pips x US$10 = US$200. Now for us Aussies, that is about AU$220. Doesn’t sound that impressive yet.
Do this for 5 days, and you end up with 100 pips or US$1,000 or AU$1,100. Already I can see a good improvement on my average 40hr working week here in Australia.

I don’t know about you guys, but US$1,000 per week is a pretty handy sum in any man’s language. (or woman’s). Some will be use to more and may consider US$1,000 not worth getting out of bed for. If this is the case, then I’m sure you can start trading with a much larger account size or I can show you a way to increase the amount without any further risk. This would be the power of compounding!

If you can make 20 pips on a daily basis, you would be crazy not to try and improve your profit without increasing your risk. How do we do this?

Using our above $10,000 account and trading one (1) standard lot for the week. We make the 100 pips for the week; therefore end up with a profit of $1,000. Now assuming we have a normal job and we don’t need the $1,000 for living expenses, so we leave it in our trading account. The following week our account balance is now $11,000, and with the same 2% risk per trade, we can now trade 1.1 standard lots (or 11 mini lots). If we make the same 20 pips per day, we are then making $220 profit for the day or $1,100 for the week. Where the following week, our account balance would stand at $12,100 and our position size would be around 1.2 standard lots, and so on.

As you can see, our profit is 10% per week, and that is a very good return. Now some of you may think that this is pie in the sky stuff and a little unbelievable. This is probably understandable as that is the way we have been trained to think, where we believe anything over 20% profit for the year is a good result.

I can assure you that 10% per week is not that spectacular in the world of Forex trading. Mind you, most traders would kill for those results, but I know of one chap who is pretty well known amongst traders that targets 5% per day, and he does this all by chasing 20 – 25 pips per day on 2% risk, just trading the EUR/USD.

The above may be possible to achieve in a perfect world, but who lives in one of those? We all know that it isn’t that easy as there is something about traders that seem to just stuff it all up. I think trading psychology has a lot to do with it, and that is probably another chapter in itself.

Most of the above revolves around a day trading type method. Obviously if you were trading off the 60 min, 4hr or daily charts, you would have different daily targets etc. But there is nothing stopping you aiming for the $1,000 weekly target and adjusting your position size accordingly.

The above examples are just to give you an idea of what is possible and that you really only need to make a pretty small consistent profit on a regular basis. You don’t have to go for the big home run every trade. Control the losses, hit your targets and then call it quits for the day. 20 pips profit a day will do it!

I told you Forex trading is easy!!

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Great Infographic for Forex Traders

Here you have an interesting infographic supplied by IFC Markets.  It shows you a brief history and some facts about four of the most popular currencies traded.  Some interesting stuff in here.

 Infographic - The Most Traded Currencies
Infographic by IFC Markets

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Trading Forex and placing orders is very similar to other types of trading. Not much changes here. But I’ll go over the more common order types for those that are new to trading.

Market order – this is where we jump straight in or out of a trade at the current market price. This is where you may experience some slippage on some platforms if the market is moving quickly. Something to be aware of! If you miss the price you hit the buy or sell button at, you will be asked if you if you want to go with the new price. It will give you a couple of seconds to decide, and if you don’t do anything, the order is canceled. This is called a re-quote and can be a little frustrating at times.

Buy Stop or Sell Stop – this is where you enter the market going with the trend. That’s probably the easiest way to explain it. In the case of a Buy Stop order, you are placing an order to buy above the current market price, so when the market moves up, your order is filled on the way through, where you want the market to continue to rise. The Sell Stop order is the opposite. You set an order to sell below the current price, and when the market falls, your order is filled on the way through, and you are looking for the market to continue to fall.

Buy Limit or Sell Limit – this is where you are looking for a reversal and going against the current trend. With the Buy Limit order you are placing an order to buy below the current market price, looking for the market to drop down to your entry level, where you will be filled, and then hopefully the market would turnaround and head up. A trader may use this if they are trading off Fib levels or Pivot points etc. They would have a specific reason as to why they would think the market is going to turnaround near their entry point. Dare I say it, but a Sell Limit order is the opposite. You would be placing an order to sell above the current market price, where you would be looking for price to continue to your sell order, be filled, and then turn back down. Again, there may be some resistance level, bolinger bands or something else that makes the trader think that price is going to reverse near their entry point.

At the time you place your trade, a lot of platforms allow you to set your stop loss and profit target at the same time. This is up to you, but I would strongly suggest at least a stop loss is set as soon as possible. It doesn’t have to be your desired stop, but as long as one is set, once the dust is settled and you are in the trade, you can quite easily adjust the stop to the preferred position.

This is where Oanda is pretty good as you can set defaults for entry size, stop and profit. Once these are set, and then it is quite simple and quick to place the trade, then you can just go back and adjust anything you wish, and this can be done directly off the chart also. Position size on Oanda can either be set as ‘unit size’, ‘US dollar amount’ or a ‘percentage’. There is also an option of setting a trailing stop, which can also be set as a default. You would use this just to trail your stop at a certain level behind the current price to lock in profit as a trade develops. It is not something I use, so I can’t really comment on the benefits of using a trailing stop but some may find it handy.

Keep in mind that a lot of these different brokers or different platforms have their rules for how close you can place stops, profit targets etc. This can vary on what time of day you are trading also, and if there is major news coming out. You will find that broker A is good for something that broker B is not, however broker B may offer another item on their platform that is far superior to broker A. There is always a trade off when it comes to brokers. The trick is to find a nice balance of honesty (very important), reliability, spreads, execution, charts, support etc. Do your homework here.

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I have some new ideas with regards to either modifying one of my current Forex Trading EAs (Expert Advisor or Trading Robot), or completely building a new one from scratch. It all depends on what my Programmer thinks and and how much work is involved. Sometimes it is just easier to start from scratch. This first video just covers the basics. It is far from perfect and requires a lot more testing. I am putting these ideas out to my forex trading contacts so I can get some feedback etc. Just another set of eyes to pick my ideas apart. If anyone wants to get involved, feel free to email me at accurateforextrader@gmail.com

As you can see from the title, this is video no.1. I may do further videos to explain certain points, but this one should give you a pretty good idea on what I am thinking about. Basically looking to reduce risk quickly, take re-entries if they present and manage open trades. Still a fair bit of work to be done, but I do have to start somewhere.

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Risk : RewardThe risk: reward ratio is something that you may hear a fair bit about.

Some will say that you should never trade with a risk:reward ratio of less than 1:1.15, or 1:2, or 1:3 etc.

All it is doing is comparing your risk to your reward. Here is an example to make it very easy to understand.

If we had a risk:reward of 1:2, then for every one unit we are risking, we would be looking for two units in return. Or to put it in trading jargon, if we had a trade on with a 30 pip stop, we would be looking for a profit of at least 60 pips to give us our 1:2 risk:reward. If it was a risk:reward of 1:3, then we would be looking for a 90 pip profit on the same example.

Now why is risk:reward important? Well it is and it isn’t. It all depends on your trading success rate.

If you had a trading system, where you had a fixed 20 pip stop and a fixed 40 pip profit target on all trades, then your risk:reward is 1:2. If you were successful on 40% of your trades, then in the long run you would be a profitable trader. So that is not a problem. But if your success rate dropped below 35%, then you would start to have problems long term.

Where a trader may have a trading method where they use a 20 pip stop and a 10 pip target on all trades, which gives you a negative risk:reward of 2:1, which in a lot of traders opinion would be considered a surefire way to ruin. But if that same method had a success rate of 70%, then this trader would be profitable overall. And there are plenty of successful traders that trade like this.

To take this further, a trader may have a method where they have a 20 pip stop and a 100 pip target on all trades. Great risk:reward at 1:5. Here, they would only need a success rate of just under 20% to be a profitable trader. Whether you could stand the high number of losers is another issue.

Don’t be scared off by what others say about risk:reward. There is nothing set in stone here, but just make sure you have a fair idea of the success rate of your trading method, so you can see where you should end up over the longer term if things were to remain constant. If you are losing long term, then something has to be changed.

This is where keeping good trading records helps, and is a subject I’ll be covering at a later date.

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Okay, I’ve pretty well covered Fundamental Trading (news events), so now it is time to get into the other common way of trading, and that is called Technical Analysis. Most of this trading is done off the charts, hence the expression ‘chartists’ or ‘technical analysis’ etc. This is the way I trade, and it is the way of how a lot of others trade also.

Technical Analysis

Earlier I discussed how most Forex brokers offer a charting package with their platform, and how the live data was free. This is good as it keeps costs down. Some of these platforms have excellent charts, like the MT4 platform, Ninja Trader or VT. This is where the Oanda FX Trade platform is a bit of a letdown as their charting capabilities just don’t compare. Having said that, you can still trade off the Oanda charts no problems at all; they just haven’t got all the bells and whistles.

Now with technical trading, you can be as simple or complex as you like. I am not going to go into all the various indicators, fibs, pivots, breakouts, trend lines etc. There are literally thousands of ways to trade and the Forex Trading internet forums are swamped by them. So you can do your own research here and find something that suits you.

The standard MT4 platform automatically comes with a large basket of various popular indicators that can easily be loaded onto any chart with the settings you choose. More than enough to get started. You can also add custom indicators to the platform. This is a very simple process and there are thousands of these custom indicators freely available online. Just get in the trading forums or Google it. If you need to know how to load these indicators onto MT4, that’s where YouTube is a great help. The resources available online these days are incredible, but if you are having problems, you can always contact me direct.

I will discuss time frames. As we already know, the Forex market runs 24hrs a day during the week, so there is plenty of opportunity to trade. Remember the previous discussion on the different sessions also, which helps with regards to identify when the action is more likely to occur.
On the trading platforms, most brokers offer 1 minute, 5 minute, 15 minute, 30 minute, 60 minute, 4 hour, daily, weekly and monthly charts. That’s the majority of them. Some also offer tick, 10 minute, 2 hour and 3 hour charts. Remember all this data is live and it’s free.

Everyone wants to be a Day Trader! Me included. I think it is just a romantic notion that is built into the human make up. It is especially cool if someone asks you what you do for a living, and you reply “I’m a Day Trader”. Sounds impressive. I wish it was that easy though. Because the charts and the data are so good, you are always tempted to keep on shortening the time frame, where eventually you will be trying to scalp off the 1 minute charts. All sounds good in theory, but very difficult to do.

Look, I’m not saying it can’t be done as I am sure there are a few successful scalpers out there. Not many I would imagine, but enough to show that it is possible. I have tried all time frames, and even though I have probably had most success on the longer time frames like 4 hours and above, I am still a Day Trader at heart.

Again, this is a decision you have to make, whether you want to be in a trade for days or minutes. Trading the longer time frames will obviously give you less trades, but more than likely larger profits, and spend more time monitoring than actually trading. Trading off the shorter time frames will give you more action, more spreads to make up and more than likely smaller profits. Then you would have considerations like stop size. Trading on a Daily chart may require you to have a stop 120 pips away from your entry price, and when you consider the 2% risk rule, you would end up with a much smaller position size. Now if you were trading off the 5 minute chart and had a 15 pip stop, and using the same 2% risk, you can see that your position size would be much larger. The trade of being the possible potential profit as I’d expect to drag a lot more pips from a Daily chart trade than a 5 minute chart trade. Bit of a catch 22 here.

Then you have to decide which pair or pairs you want to trade. If you are trading multiple pairs on the larger time frames, it is quite easy to do so. This may also help with giving you more action, if that is what you are after. But trading multiple pairs on the smaller time frames can be a little stressful and sometimes difficult to keep control of when things start moving quickly. It also plays with your mind a bit, especially if you have a losing trade on one pair and try to make up for it on another pair, which may cause you to ignore your normal exit rules. I think they call this revenge trading.

If you are going to trade off the smaller time frames, may I strongly suggest you concentrate on one pair to start with. This just makes life a lot easier and you can put all your efforts and concentration into this one pair.

My bread and butter set up, is just the EUR/USD on the 5 minute chart, with a 60 minute chart next to it, just to give me an idea of the general trend. I have a couple of basic indicators on both charts. I chose the EUR/USD for a couple of reasons. One it has the lowest spread on Oanda, dropping down as low as 0.5 pip during normal trading times, and two, it is by far the most popular currency pair traded. I think it accounts for close to 70% of total Forex volume. Don’t quote me on that though! I have a target amount of pips for the day and then I am done. I close down my charts and do other stuff. I sleep better when I have no trades on.

The above is what I do, and what works for me. It may not work for you and I’m certainly not trying to convince anyone to follow my path. I’ll discuss specifics on my trading at a later date. If you have had experience at trading anything, you will know that there are thousands of different ways to trade, and Forex is no different.

If you were after a pretty good book on Trading in general, then may I suggest a book called ‘High Probability Trading’ by Marcel Link. It covers all the major topics and is quite informative considering it is such a huge topic. He does a great job of covering the understanding and use of the majority of the most used technical indicators. A book that wouldn’t be out of place in any good trading library. The other book I would suggest is ‘Google’ as it is the world’s biggest library by far, but please remember, a lot of it is rubbish. You have to sort out the good from the bad.

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I just put a basic video on YouTube showing a simple way I trade the 1hr charts.  Basically I use a couple of my favourite custom MT4 indicators, the MACD Platinum and QQE Adv in conjunction with a Linear Weighted Moving Average.  I will only take trades based on the trend of the Daily chart.  This will ensure that a lot of false moves are avoided.  Not perfect but a good simple sustem that will be profitable over the long run.  It is up to the individual Trader how they manage their open trades, but I do give one idea in the video where you could open multiple trades in one direction and manage them as a package with the help of a spreadsheet I had made.  Plenty of options available, so pick what best suits your own style.  If anyone would like any of these custom MT4 indicators or the spreadsheet I mentioned, feel free to contact me and I’ll send you the info for no cost.
 

 

I have built a couple of EAs based on these same indicators, and I’ll be doing up further videos sometime in the future to demostrate these in action. Again, nothing to sell here and these EAs will be freely available to anyone that asks.

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When it comes to trading, whether it be Forex, Stocks or Daffodils, most traders have a plan that they base their own particular trading method on. With Forex trading, the majority of small retail traders like you and I, would probably use some sort of technical analysis, which is basically trading off the charts, using whatever indicators, patterns or set ups you choose. Or you may even just wing it and trade without anything on the charts. Still a method for some I guess.

Then there are traders that will ignore the charts and trade off and around major news releases, which are basically the fundamental side of trading.  There are traders that use this as their sole method of trading the forex market. Here we are trading based on a theory on how you think the market will react to a particular news item like an Interest Rate cut or something similar.  Or you may have some long term thoughts on the Japanese economy where you may decide to buy or sell the yen against another currency. There is just about some sort of news released every day that will affect some currency in some way. The trick is to work out which way the news will affect the currencies you are trading.

The problem with the news releases is that though they are just about all set at a certain time, if you are not aware of them, they can catch you out big time. For example, the biggest news release is the Non-Farm Payrolls figure which is released at 8.30am New York time on the first Friday of every month. Depending on the numbers that come out, this baby can move the market 100+ pips in a heartbeat, and if you are on the wrong side of it, lookout! Within 2 minutes, the market may have moved 200+ pips. It does happen! Imagine how you would feel if you just left the room to go to the bathroom without a stop in place, only to return 2 minutes later to find your trade so far in the red, you feel sick. Having said that, it could have also gone in your favor, but do you want to take that chance?

What is my point here? Be aware of the NEWS!

Now the good news is that there are plenty of free news calendars available on the internet, but the one I use can be found at Forex Factory. It is very simple to use as you can modify it to suit your own requirements. For example if you only traded the EUR/USD and you were only concerned about news that had a medium or high impact on those currencies only, then you can set up the filter to show these news events only. Just click on the ‘Filter’ tab on the top right hand side above the title bar.  There is plenty of information on what the news is about and how it may affect the market, if you are interested. It is also set in your local time, so that makes it easier also. At the beginning of my trading day, I will open this site first and check for news releases that may affect the pairs I am trading. I will write these down in my journal, and if it is something big, I’ll normally set an alarm to warn me about 10 minutes prior. This will then put me in a position to either tighten up stops on open trades, close them or not enter a trade until the news release has past. It is crucial that you are aware of these news releases, especially if you are a short term trader, and make sure you have a plan in place if you are trading through them.

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I came across an interesting blog post the other day by Hugh Kimura of Trading Heroes that was titled ‘How to get started with incremental automation in forex trading’.  You can read the full article here.  It’s not a bad read, and while you are at, add his site to your favourites as there are plenty of good articles and interviews there for Forex traders to check out.

Anyway, this article got me thinking about a post I replied to in one of my threads on the Forex Factory Forum, where I spoke about something very similar.  Forex factory is not a bad trading resource if you are after some very specific information, but keep in mind, it is similar to a lot of other forums where you have people jumping all over you if you dare suggest something that doesn’t fit the norm or their understanding of how trading should be done.  I basically use any trading forum to bounce ideas around as I know there are traders out there that are way smarter than me that may offer me some constructive feedback etc, which i do appreciate.  I also like to use them to help other traders out when I can by offering free access to any of my custom indicators, EAs or trading ideas.

But here is a copy of the post I mentioned above that refers to some of my thoughts on Forex Trading and that of semi-automation;

How goes it? Yes still trying but now having some decent success, but I wouldn’t be silly enough to think that the holy grail is out there. But I will explain some of my thoughts when it comes to forex trading. Anyone that has seen any of my threads in this forum will know that I tend to look for slightly obscure ways to trade. I don’t subscribe to what most traders would consider the norm ie using stops, risk reward ratios, support resistance etc. All good in theory but not suited to everyone. I’m not saying I am silly about the way I trade, but most would find it slightly left field.

I love my trading robots but I don’t rely on them totally. I love trading forex but I don’t want to sit in front of my trading screen all day either. The reason we trade forex is to make money. The reason we want to make money is to improve our lifestyle. I also trade forex to give me time, hence my love of robots. Going around in circles here it appears. Most of you know I basically use the same two custom MT4 indicators for most of my trading, that being the MACD Platinum and the QQE Adv. Throw in a LMA and I have more than enough to trade. I ignore news, Fib levels, Pivots, Support/Resistence, Overbought, Oversold, round numbers, candlestick patterns, divergence, moon phases etc. I keep it pretty simple, normally trading off a small time frame in the same direction as a larger time frame. I will take multiple trades, stacking these trades and then using a spreadsheet that I have already shared here, work out an overall position and then manage those trades as a whole.

I use the robots for entry only. They also give me the option of setting emergency stops, or outrageous profit targets, just in case I can’t get to the computer for a day or so. As I run several live accounts and can’t afford to have any down time, they are all run on a VPS. Small monthly expense but certainly worth it. I also use a trade copier so all the charts are only set up on the one platform, so it saves some hassle setting them all up. Money management is also controlled by the trade copier, whic is handy if you want to close all trades out when your account reaches a certain balance, so it can start all over again. I also have a desktop up that runs a mirror demo account with all my charts and my spreadsheets. I do trade multiple pairs on multiple timeframes so have a lot happening at once. I tend to trade the more volatile pairs also. Again refer to the picture I posted earlier in this thread.

The trading works on the EA opening the required trades on the parameters I have set. So I have no say in this and just let the EAs do their thing. Once trades are open (which is all of the time), I’ll update my spreadsheets and keep a very close eye on my margin requirements. All my accounts are set up for hedging, so no problems being long and short at the same time on the same pair, which does help with margin issues. I do keep an eye on overnight interest rates also, as they can rack up pretty quick when you have a large number of trades going the same way, for example if you were long EUR/AUD. Not too bad if you were short though. So a few times during the day I will check the trades and make any necessary adjustments. This may include closing out any baskets of trades that I think are getting out of hand or turning ugly, or it may involve removing an EA and setting hard stops to lock in profit etc. Normally takes me about 15 mins, so I can then go and do things I enjoy.

I tend to keep my position size very small but keep in mind I do use an EA that does increase position size on each new trade opened based on the initial position size. Something I do have to keep an eye on. Having said that, I have another EA that does trade a tad more traditionally, and I even keep that pretty small. It is strictly a numbers game for me, looking to win way more than I lose. Just like any trading I guess. This style of trading does take a little bit getting use to as the majority of the time, your account will be in drawdown which would make some traders very nervous. I have no issues if the profits are constantly ticking over and I am in control of my margin and things aren’t getting out of hand. Something I am trying to teach my son at the moment as he always questions why his account is constantly in the negative, even though his account balance is slowly increasing.

This style of trading is not for everyone. Some traders are quite happy to sit there watching the EUR/USD 1hr chart all night and just taking individual trades on whatever trading method they use. Fair enough. If it works for you, then that’s cool. If it isn’t working or you are getting the same crappy results, then it may be time for a change. Might be time to do what every one else is not doing. Just my opinion.

If anyone would like to discuss this further or would like access to any of my EAs or MT4 custom indicators, feel free to contact me and I will have no problems sharing them with you at no cost.  Cheers and good luck with your own trading.

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Seems to be never ending this subject, but as already stated, it is very important to fully understand risk and how it affects your trading. You don’t want to blow up your account in one or two stupid trades.

Use a 'Stop Loss' to help control risk

Use a ‘Stop Loss’ to help control risk

Just going back to my example of only risking 2% on each trade. One thing that does come up, that different people have different opinions on, is how long you maintain the same position size for before adjusting it to suit your account balance.

Say for example, you only traded the EUR/USD and your stop was always 30 pips. You decide your position size, enter the trade and end up making a profit. This will obviously increase your account balance, and if you were to maintain your 2% risk on the next trade, then technically your position size would be slightly larger on this trade. This may not always be possible, depending on your account size and if your particular broker allows you to trade micro lots as you may be forced to round it down to the previous size anyway.

Now some traders would suggest that you stay on the same position size for a session, some say the week, and others would suggest a month. So no matter what happens, if you started that particular trading sequence with a 2 lot position size, you would continue to trade that same 2 lot position size until the end of the sequence, and then readjust it for the next sequence according to your new account balance.
Other traders will suggest you adjust your position size after every trade. This can get a little confusing, especially if you are trading different currency pairs with various stops. It can get a little ugly. Some say this also disadvantages you if you are trying to recover from losses due to the fact you will be entering trades with a smaller position size if you had a few losses in a row. Not sure about that theory.

As I have said many times, I am trying to keep it simple. Me, I decide on a position size at the start of my week and I stick with that same position size for the entire week. Come the following week, I’ll have a look at my account balance and make adjustments if necessary. This works for me and certainly makes my life easier as the position size is stored automatically in my platform for every trade.

Now some traders may not make that many trades in a week, or they may rattle off 30 trades in a session, so everyone will have their own way of doing things. Some traders will scale in or scale out of trades, which then put another spin on risk etc. There is no way I can cover all types of trading scenarios, nor do I intend to do so. This information is just to give you ideas or maybe make you think of something you have not previously considered, and then I throw my thoughts in on how I do things. There is no right or wrong way, and at the end of the day, if you make a profit and don’t get too stressed or worn out doing it, then you are doing something right.

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Just a couple of points that I have not spoken about.

First up is ‘risk’ and ‘correlation’. I have discussed risk per trade where I suggest no more than 2-3% per trade. Again, it is up to the individual trader on much they risk. One thing I must point out though is the problem with correlation. This simply means that two pairs may trade generally in either the same direction at most times, or in the opposite direction most times.
The most obvious and highly correlated pairs are the EUR/USD and the USD/CHF as they basically move pretty well opposite to each other, under normal circumstances. So if you had bought the EUR/USD on one trade and sold the USD/CHF on another trade, risking 2% on each trade, in reality you are actually risking 4% because of the high correlation.

The EUR/JPY and GBP/JPY also can move pretty much in the same direction for a lot of the time. When you think about it, if the pairs have a common currency involved and news comes out that affects that currency in a big way, then it doesn’t really matter what involvement the other currency has, as the market will move.

It is just something you will have to be aware of when it comes to total risk on your trades. Best way to check out how different pairs move in relation to each other, is just throw up the 1hr charts of all the pairs you are interested in trading on the one screen and see how they move over a few days, especially when news is released.

I also spoke about planned ‘news releases’ that may or may not move the markets. Today for example, as I am only trading the EUR/USD and I am only concerned about possible high impact type news, I have checked the Forex factory calendar and now know that I have to be on my toes at 7pm my time for news out of Germany, and especially alert at 10.30pm my time for 3 major items of news out of the US. Hopefully my trading will be finished by 10.30pm, so it won’t be an issue.

Now there is sometimes the case of unplanned news that may affect the Forex prices. Examples of this include terrorist attacks on US soil (Sept 11), capture of a highly sought after individual (Sadam) or even some dopey Treasury official making an out of the blue comment during what should have been a dull and predictable speech. Lots of things can move the market when you least expect it and it does happen on a regular basis!

I have been sitting at my computer, quite aware of all news coming out, when suddenly a pair may just shoot up 50-100 pips in a minute or two. Gets the heart pumping as you quickly check all the news releases to see what has caused the blip. It may be something simple like a rumor of a planned attack in central London. It doesn’t matter if it is false, as the market will eventually correct itself.

Just be aware that news can come out unexpected and move the market, where I get back to my previous point of making sure you have some sort of physical stop in place at all times.

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Just a couple of things. You may have noticed a sign up form to the right where I am requesting your email address. This will not be a sales list where I will be bombarding you with weekly emails trying to sell you something. More of a list where I will contact you every now and then with anything I think would be worthwhile, whether it be one of my free EAs or any of my custom MT4 indicators. Your privacy is important to me, so I won’t be passing your details onto any third party.

Eventually I will be hoping to offer a signals type service or even manage private investors money using my own EAs and manual trading methods. I maybe looking for Beta Testers or looking for assistance, so people on my list would be contacted to seek your help. Nil obligation though as it is entirely your choice.

Also to the right, you will see another MyFXBook link to a small live account I have set up with XM. This is just a nano type account where my smallest position size at 0.01 lot is actually equivalent to $0.001 or 1/10th of a cent. With a leverage of 888:1 there is plenty of opportunity to really play with a small account like this and see what is achievable. I deposited $100 to start this account and they threw in a $30 bonus just to give me a little more equity to play with, but keep in mind that this bonus is not counted in my return. I have already received an angry email from XM demanding I remove one of my EAs as it was causing their servers to overload. Just not sure how sch a small account like mine could cause so much drama. Did what they asked and have had to change the way I trade using this same EA. Basically got rid of the trailling stop method. But I urge you to keep an eye on this account as I am very confident that it will produce pretty good results once I work out a comfortable position size for the trading.

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I consider ‘risk’ to be a pretty important issue when it comes to Forex trading. Probably not so much of an issue if you are a longer time frame style trader, say the weekly or monthly charts, but if you are a day trader, then it certainly is an issue. TRUST ME ON THIS!

Now I don’t really care what your percentage risk is per trade as that is up to the individual trader. I have suggested 2-3% which is pretty common amongst successful traders, even less is better according to some. This will ensure you stay in the game longer at least. If you want to risk 10% on a trade, that is up to you. But I will say that it is very much in your interest to have a physical stop loss in place. This is a point where you will be taken out of a trade if something does go wrong.

Quite simple if you follow this!

Quite simple if you follow this!

What can go wrong you ask? Other than you picked the wrong direction for the trade, which will happen every now and then, you may also have internet problems or the biggie, unfavorable news comes out that completely catches you by surprise and before you know it, your trade is down a 100 pips or so.
First up, there are potential internet problems. Doesn’t matter where you live, you can never be guaranteed of 100% reliable internet connection. It only takes a storm within about 100kms of my place to disconnect me at times, and I’m with the biggest telco in the land. When I was trading full time, I also had a back up with the old dial up to my cable broadband. These days, you can get the wireless modem as a backup. One other thing I would strongly suggest is that you have your broker’s phone number handy, so you can ring them direct and either close trades or move stops etc. I have done this in the past to get out of trouble, and it is nice to know that you have this option if worse comes to worse. Again, this may only be available with the bigger well known brokers. It also helps to consider any possible language problems if you have to get on the phone.
Potentially the biggest problem is news releases or unexpected news. Forex moves on news! And there is always plenty of news coming out. The good thing about it, is that most of the news is released at set times which is very easy to keep track of. Very easy, and I’ll go into this in another article.
So what am I saying here? MAKE SURE YOU USE STOPS ON ALL TRADES. Can I be any clearer on this!
Now the stop depends on you, but please don’t make it a mental stop. These just don’t work in Forex trading, if trading the smaller time frames. Even if you have some sort of safety stop that is some distance from your entry to prevent total wipeout, which you can adjust later once the trade is up and running, is a much better option that having no stop at all.
To give you an example of price movement in a 24hr period, I believe the average for the EUR/USD is around 100 pips and the GBP/USD is about 120 pips (give or take). That is just an average move in 24hrs. When I say move, it may start and finish at the same price, so I am referring to a possible range of movement here. If you were trading 1 standard lot and the market moved 100 pips against you, then you would be $1,000 in the red. Not good!
Use STOPS!
If you are not sure what a stop is, then it is just an order to close out your trade automatically if the trade goes against you by a predetermined amount. An example:
Bought EUR/USD at 1.3950, and obviously wanting it to increase in price to profit. You decided you did not want to risk more than 30 pips on this trade for whatever reason, so you would place your stop at 1.3920. If price fell to this level, you would be automatically closed out of the trade by your broker’s platform for a maximum 30 pip loss. It wouldn’t matter if you were online or at the beach as it all happens automatically.

Using stops is a simple part of the whole forex trading experience, and an important one at that. They are easy to place at the start of the trade and easy to adjust once the trade is up and running. I strongly suggest that you use them at all times, just to avoid the unexpected.

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Here is something a little different from what I would normally write about – someone else’s forex product. This guy and his team have been around for a while now and their service is pretty comprehensive with some good reviews. It may be something you are interested in. If so, just click on the banner below and that will take you to his page where everything is explained in detail.

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You may have noticed that my live Forex Trading account has taken a bit of a hit, as has my demo account.  I was experimenting with multiple EAs on the one pair on two different time frames.  I found I lost a little control of the whole situation due to me being in a very remote location with limited internet access.  I closed all of my live trades last night and this may prove to have been a little premature, hence I want to keep the demo account trades open and running their natural course.

I’m not too concerned as I like to put my systems under the pump on small live accounts just to see how they perform under fire.  Demo accounts have their advantages but there is nothing like trading live.  Now these losing trades also give me an idea of where I am going wrong and what I can do different next time.  I like the idea of multiple EAs on the same pair, but I may have to reassess this and put it on hold for now.  My main EA is the SMSF, which I am currently having modified by my Programmer, and this new modified version will be adaptable to the new MT4 build.  Looking forward to getting my hands on it and recovering some of these losses.

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How do you trade forex? It may seem a little confusing at first, but really, it is quite simple.

Forex is a leveraged financial instrument, as is Options, Futures, CFDs, Warrants etc. So this is nothing new.

You trade Forex in ‘lots’. That is basically the industry standard, but there are brokers out there that do things slightly different. For example, Oanda trades in ‘units’, but they can be easily converted to a lot size equivalent.

Lots are known by different names, depending on how much currency they represent.

There is a standard lot, a mini lot and a micro lot.

One standard lot is equal to 100,000 units of the base currency

One mini lot is equal to 10,000 units of the base currency, and

One micro lot is equal to 1,000 units of the base currency.

How many lots you can buy or sell depends on a few things.

– your account balance

– your nominated trading leverage, and

– how much you are willing to risk on the trade?

Forex Trader

This is when I mention the words ‘margin’, ‘leverage’ and ‘risk’. All words that are important, but no need to get all stressed about them as they can all be controlled and I’ll show you an easy way to stay out of trouble.

Margin just refers to the money you have in your account that is available to trade with. As stated earlier, Forex is a leveraged instrument, so if your broker offers you 100:1 leverage, then for every I unit you have in your account, you can control 100 units. Some brokers offer up to 400:1 leverage. If you are over leveraged and a trade goes against you, and you decide not to take any action, your broker will close the trade on your behalf to protect their interests, even though you may have blown your account out. It is not something that concerns me as my risk is controlled on all trades. Risk just refers to what you are willing to risk on any particular trade, in terms of dollars.

Now to the lot size and the equivalent pip value. Just to refresh your memory, if the EUR/USD moved from 1.3924 to 1.3928, it has moved a total of 4 pips, and if the USD/JPY moved from 95.23 to 95.19, it also moved 4 pips. Pretty straightforward so far.

If I was trading 1 standard lot ($100,000), then each pip is worth US$10. So in the above EUR/USD example of the 4 pip move and you were trading 1 standard lot, 4 pips is equal to US$40. The same US$10 per pip also applies to the GBP/USD, AUD/USD and NZD/USD.

That’s the easy part. Now all the other forex pairs aren’t quite as simple due to the fact that the USD is not the quote or counter currency. So what you have to consider here, is the currency conversion between the two pairs and the maths can be a little confusing. Me, I keep it simple, and consider all pairs to have a 1 pip value of US$10. Just about all of the forex pairs, except the EUR/GBP have a pip value of less than US$10, and most of these are just under that level, but they do fluctuate with currency variations.

If you do need to know the exact pip value, there are plenty of free web sites with a built in calculator to do all the maths for you.

The majority of traders either trade standard lots or mini lots. As stated earlier, Oanda is slightly different here as they trade in units, which can be very useful for precise money management.

Okay if 1 pip is equal to US$10 on a standard lot ($100,000), then 1 pip on a mini lot ($10,000) must be equal to US$1, and 1 pip on a micro lot ($1,000) is worth $0.10. Simple! And to keep it very easy and simplified, just consider every Forex pair the same. I know a USD/JPY pip isn’t US$10, but it is close enough for me not to worry about it’s exact value. If your style of trading is affected by the exact price of pips on the Forex pair your are trading, then you will have to use something like the calculator above to work out the exact values.

Let’s get into a trade example:

I have $2,235 in my trading account, and I am happy to risk 2% on each trade.

I’m in my brokers account looking at their charts and I see a nice set up on the EUR/USD where I am looking at buying at 1.3928. I am going to place my stop (stop loss) 30 pips below at 1.3898. So my risk on this trade is 30 pips.

Now I need to know what my position size will be, where I am risking no more than 2% of my overall account balance of $2,235. This actually equates to $44.70.

The easy way to work this out is by using the following:

Account Balance multiplied by risk percentage, divided by risk, equals position size.

In this trade, the maths would look something like this:

$2,235 x 2% = $44.70

$44.70 / 30 pips = 1.49

Therefore my position size on this trade would be 1.49 mini lots. You would have to round this down to either 1 mini lot, or 1.4 mini lots if your platform allows this trading size.

If you are unsure of the position size, whether it is in standard or mini lots, just do the maths backwards to confirm. You know the maximum risk is $44.70 on this trade. If you went into the trade with 1 mini lot, you know each pip is worth $1, so if you were stopped out, then you would have lost $30, which is under your max risk of $44.70, due tot he fact you had rounded your position size down.

Just another example with a much larger account balance and a different risk percentage and stop placement.

Account balance is $37,840, your trade risk is 3%, and you are placing an order to sell the GBP/USD at 1.4562 with a stop at 1.4607, which is 45 pips away.

Let’s do the maths to work out my position size.

$37,840 (Account balance) x 3% (risk percentage) = $1135.20

$1135.20 (max risk) divided by 45 (stop) = 25.226′

Therefore my position size would be 25.226′ mini lots, rounded down to 25 mini lots or 2.5 standard lots.

Do the maths in reverse if you want to double check your position size. You know your max risk is $1135.20, and your stop is 45 pips, and each pip is worth $10 on a standard lot. If you were to lose 45 pips with 2.5 lots, then 45 x 2.5 x 10 = 1125, which is under the $1135.20 risk.

It may be a little confusing at first, but it is very simple once you get the hang of it. By using this formula, you should never have to worry about leverage, margin or risk. They just don’t come into it. But having said that, it all depends on your risk percentage levels and your actual trading methods. You do need a successful trading method, because if you don’t and you were only risking say 2% per trade, you will eventually blow out your account. It will just take a bit longer to achieve this than if you were risking 10% on each trade.

There was a fair bit of information on this article, and it was pretty important information. In the next article, I’ll go into this a little further and talk about risk etc.

Article Source: http://EzineArticles.com/?expert=James_Sheach_Brown
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Where do we trade?

Note : I originally wrote this article back in 2009.  Boys have things changed since then from a technical side of things.  What I refer to here is smart phones and the like.  What I state below is still very true to this day, but nowadays there are some great apps for mobile trading.  For example MetaTrader 4 is an excellent app, as is the Oanda app.

You will have to open an online brokerage account to enable you access that broker’s trading platform. As I mentioned earlier, most brokers offer demo trading where you can practice trading without risking real money. A bit like playing monopoly. You do not need to deposit any funds with a broker to gain access to their demo platforms, as most are quite willing to let you try them without any obligation. This is also gives you the chance to try out various platforms and see what you feel comfortable with.

Which broker?

This is a good question and you will get a variety of answers if you were to ask around in the trading community. First up, I would strongly suggest that you choose one of the bigger well known ones. Trust me on this! The retail forex industry is still relatively young and it hasn’t got the same regulations and rules to follow as a lot of other traded financial instruments. Mainly due to the fact that there is no central exchanges involved. But having said this, a lot of governments are beginning to formulate rules and regulations that do give forex traders better protection. But be warned, there are still bucket shops (dodgy brokers) out there who will rip you off in a heartbeat.

I certainly don’t want to scare anyone off, but be warned and choose wisely.

There are plenty of good decent brokers around, so no need to panic and get stressed about this. I would also suggest that you do not place all your funds into one broker, especially if you have a substantial amount. What I am talking about here, is if you had say $100,000 to trade (which you don’t need!), I wouldn’t be depositing all this with one broker. I’d either be spreading it amongst two or more brokers, or keeping funds in reserve and only depositing them with my broker if they were required. Again, it is just a safety thing and you will sleep better at night.

A lot of traders also like to keep their hard earned cash in their own country, and I can understand this, and again it is just a perceived safety thing. Me personally, I haven’t got a problem with dealing with overseas brokers. My past experiences have produced no problems at all transferring funds either way, so I am quite happy to have overseas based brokers. I really didn’t have a choice as up to a couple of years ago, there wasn’t any Australian based brokers that I was comfortable with, but that has since changed.

Not all brokers trading platforms are the same. This is where it gets interesting. Every platform appears to have its advantages and disadvantages. You have to find something you are comfortable with.

Probably the most popular forex trading platform is Metatrader, or more commonly referred to as MT4. This platform is then used by a variety of brokers. How this works, is that you would go to your chosen broker’s web site, sign up with them, and then download the MT4 software from their site. Here you can either select demo or live trading or both. Obviously they would have further instructions on how to deposit funds into your brokerage account.

You can find out more about MT4 by doing a Google search on ‘metaquotes’.

MT4 is software that you have to download. Be aware of that.

I personally find the MT4 platform one of the best, especially for the charts. It is quite incredible what you can do with this platform. Even though the charts and other features are excellent on the MT4 platform, I am not particularly happy with the way you place orders. It is not as easy as it should be and can be a little frustrating at times. But the charts are excellent, or did I already say that?

Being and Aussie, I use GoTrader for my MT4 platform and I am quite happy with them.

The beauty of the MT4 platform is it’s popularity and the ability to write your own computer code to design your own custom indicators or expert advisors. There are even dedicated forums and groups that just discuss this platform. Most trading platforms come with a variety of standard charting indicators. Things like Moving Averages, MACD, RSI, Bollinger Bands etc. Now with MT4, you can design your own custom indicators and download them direct to your trading platform, and then onto your charts. Don’t worry if this sounds a little confusing at the moment as it does become clearer as you become more familiar with the platform. You don’t need these custom indicators to trade, and if you are interested in trying them out, there are plenty of smart traders out there who have already done all the hard work and made them freely available online. There are thousands of them.

I also mentioned expert advisors, commonly known as ‘EAs’ or ‘Trading Robots’. All this is, is a software program that is loaded onto your platform and then onto selected charts. A fully automated EA, once activated, will go to work, where it will identify trades that fit its trading criteria, open a trade without human involvement, manage the trade without human involvement and eventually close the trade without human involvement. All sounds too easy, doesn’t it! Again you can design your own or let someone else do it for you. They are not as freely available as custom indicators, but they certainly are becoming more popular.

Again, be warned! There are plenty of scammers out there selling these trading robots based on outrageous promises of untold wealth. Do your due diligence and choose wisely if you decide to go down that path. The good ones are far and few between, and if you did have a decent EA, would you share it with the world for a hundred or so dollars?

MT4 is not the only platform you can customize indicators and trading systems, but it is by far the most popular. I have used CMS and their VT Platform in the past, and they too have an excellent charting package.

There are plenty of other good brokers around. One of my favorites is Oanda. It is a web based platform so there is no software to download, which means you can access your platform from any computer that is Java equipped. Oanda is a very popular and reliable platform which offers very low spreads and is very simple to use. The only thing I don’t like about Oanda, are the very basic charts it provides. Normally, when trading off the charts, I would use the MT4 charts for analysis and then carry out the trade on Oanda. There is also one other big advantage on using Oanda with regards to trade position size. It is one of the reasons I like them so much. They have been around a few years now and there is rarely any negative comments about them. Certainly a great beginner’s broker and platform.

As stated earlier, there is no central exchange for Forex trading, therefore pricing on different currency pairs can vary at times between the different brokers. Normally all the good brokers will be within one or two pips of each other, which really isn’t an issue. However every now and then, there will be a price spike on one brokers charts but no others broker. Too bad if you had an order set around where the price spiked, whether it be a buy/sell order or a stop loss. These type of fluctuations normally happen on the not so well known brokers platforms. If you stick with a decent broker, you will avoid these types of problems. I normally run two platforms together and can see the differing prices, but as they are two reputable brokers, there is rarely an issue with price differentials.

Now I have mentioned the term the ‘spread’ already, which is just the difference between the bid and the ask prices. It was only a few years ago that the spread on the EUR and JPY were 3 pips, and the other major pairs ranged from 4-5 pips, and this was happily accepted by all. Nowadays, it is not uncommon to get spreads on the EUR and JPY for 1 pip or less, and the other majors, for less than 3 pips, as are a few of the 2nd tier pairs and crosses. The spread is your cost of doing business. Remember that for you to make any profit, you must first make up the spread. For example, if you bought the USD/CHF at 1.0774 and you had a 3 pip spread, then the price would have to raise to 1.0777 before you are in a break even position. Remember you buy at the ask price and sell on the bid price. So in this case, when you bought, the quote would have been 1.0771 / 1.0774. It then has look like this before you can get out at break even 1.0774 / 1.0777, which is a 3 pip increase in price.

Some brokers maintain the same spread, albeit a little higher during all market hours, whilst other brokers may vary the spread depending on the volatility at the time. What is volatility? It can be when the market is very quiet, like when the market opens early in the week, or after hours at the end of the US session before the Asian session has cranked up. It can also refer to when there is very high volume, normally in anticipation of a major news release. This is where some brokers can really widen their spreads. They don’t stay wide for long, but it can be 5 minutes or so. Oanda does this, and the spreads can go out to 20 pips on the volatile pairs like the GBP/USD. This is not good if you are scalping or have a really tight stop or other orders close to the current price. Something you have to be aware of.

You will find that if the spreads stay constant, then there is normally a trade off somewhere else. In the case of CMS, their spreads remained constant but during the very volatile times, then you would have difficulty placing orders or stops close to the current market price. A few years ago, just before any major news release, traders would place a buy order and a sell order close on either side of the current price just a few seconds before, hoping to cash in on a big price spike one way or the other. One order would be filled and they would cancel the other, looking for a decent run in the original direction. Brokers didn’t like this and put practices like I have discussed to prevent this. A bit like the casinos banning card counters, even though it is not technically illegal, it was giving them an edge.

Then we have the problem of requotes and slippage. This shouldn’t really be an issue with Forex trading if you stick with the better brokers, but it can and sometimes does happen.

Generally, the better well known brokers are becoming much more reliable (and honest) these days. It wasn’t that long ago, that they were a little inconsistent and traders did have problems that were plastered all over forums, therefore affecting certain brokers reputations. This doesn’t seem to be such an issue nowadays though. But I would suggest you do your own due diligence by getting out there into Googleland and checking things out.

There have been a few new rule changes in the last few weeks affecting US based brokers. Nothing major, but certainly things you have to be aware of if you are a hedger. I’ll post some info on the next post about these rule changes.

We’re getting there!!

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Happy New Year to all of my fellow Forex Traders out there no matter where you are in the world.  I hope you all enjoyed the festive season and managed to catch up with family etc.  Every one celebrates this time of the year a little different and I was lucky enough to find myself at home to celebrate with all my family.  Now looking forward to 2014 and hoping that the Trading Gods treat me nicely!

I have been a bit slack with regards to updating this site and the main reason being that I took up a new job in Papua New Guinea back in early Oct 2013.  This job has me flying out of my home in Australia for four weeks at a time.  I am working on a small island in the very north of the country just below the Equator, which has very limited internet access.  Well that was up until late December.  I return home for two weeks after each four week swing, but it wouldn’t be fair on my family to concentrate on my trading during this break.  Now we have much better internet on the island, I am now able to commit more time to this site and my trading activities.

Having said all that, I haven’t been sitting on my hands doing nothing with regards to my Forex Trading.  I have been putting a lot of time into testing my EAs as this does not require the internet, just my trusty laptop.  I have been concentrating on my SMSF EA as of late as I have recently had it modified to include a couple of filters.  Ideally I would love to be able to set it up on the smaller timeframes where there would be a lot more action, but other than the EUR/AUD 1hr chart, I am not having much success with it to date.  But I am getting some great results with a lot of pairs on the 4hr charts and some excellent results on most of the pairs using the daily charts.  There can be a fair time gap between trades on the daily charts, but trading many pairs reduces this problem somewhat.  At the end of the day our main aim is to make money with as little risk as possible, not necessarily have a fun time doing it.  Sometimes boring is better!

So I’ll keep on testing this EA and try and dedicate my live MyFXbook account solely to this EA in operation.  As you can tell by the results to date, there hasn’t been that much action on the account and that it has been a little up and down.  Hopefully it will become a little more consistent now that I have sort of settled on a few set ups and I am now using a conservative money management set up with it also.  If anyone would like a free copy of this EA, or would like to assist me with testing of it, I would be more than happy to hear from you.  It is easy to contact me through the email address on the ‘contact me’ page on this site.

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Now in my previous post I discussed a purely mechanical SAR method of trading. For those that don’t know, SAR means Stop and Reverse. So you are basically closing out a trade in one direction and then opening a new trade in the opposite direction, therefore you are always in the market. Can’t complain of lack of action here…

I do have an EA I designed and had built that is called my SAR EA. This was designed for trading forex, but I have run a few successful tests on Gold and Oil via the MT4 platform also. Now the method involved in this EA has absolutely nothing to do with the SAR mechanical method mentioned in the previous post, so I don’t want to confuse anyone.

Until I work out how to add downloadable files to wordpress ie the EA and custom indicators, I’ll have to re-direct you to my thread at Forex Factory that covers this topic in detail. Here you can download everything and also check out other videos. Go to the Forex Factory thread.

Check out the videos below to give you an idea of how the EA works.

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Well it’s not exactly new as I have traded forex using this system before. That was a a few years back as part of a trading team that concentrated on three currency pairs only, and only traded the 1hr charts. It was hard work due to the constant checking of charts. Sleep was rare until the weekly target was achieved. Anyway, I’ve started a thread over at Forex Factory about this system, so instead of doubling up with all the same information, just go to this link and check it out.

I have done up a couple of videos to explain it all a little better, which can be seen below. Also better if you watch these in HD. Nothing too professional here as my video skills are limited…

This 2nd video just shows an example of how the system would handle a sideways market.

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What do the numbers mean?

Forex Trader

For example, if the AUD / USD was quoted at 0.7125 / 0.7128, what exactly does this mean?

The first figure of 0.7125 is called the ‘bid’ price.

The 2nd figure of 0.7128 is the ‘ask’ price.

The difference between these two figures is called the ‘spread’.

If I wished to buy the Aussie, thinking that the Australian dollar is going to go up in value compared to the US dollar, I would be required to pay the ask price, which in this case is 0.7128. On the other hand, if I thought the Aussie was becoming weaker against the US dollar and I wished to sell it, then I would sell it at the bid price of 0.7125.

Now if I was to buy the Aussie at 0.7128 and then immediately close my position before the price had a chance to move, I would have to close the position by selling the Aussie at 0.7125. Now there is a difference of 0.0003, which is called the spread, and that would be the amount I lost on this trade. In the case of the Aussie, each 0.0001 move is called a pip (or sometimes referred to as a point). So on this trade, I would have lost 3 pips.

All the pairs I mentioned above, except the JPY pairs, normally have four decimal places, and their pip value is calculated the same as the above Aussie example. The JPY pairs usually only have the two decimal places. An example of the USD/JPY could be quoted as follows:

97.81 / 97.83.

This tells me that one US dollar is equal to approximately 97.8 Japanese Yen.

The bid price is 97.81 and the ask price is 97.83, and that there is a 2 pip spread. In this case each 0.01 move is called a pip.

Now just to confuse you a little, some brokers do have an extra decimal place on their quoted prices. It is becoming more common as more brokers change their data feed sources. As stated, with all pairs, except those involving the JPY, there will be four decimal places. The JPY pairs will have 2 decimal places. If you see five or three decimal places, ignore the very last digit.

For example if you saw a quote for the EUR/USD as 1.38641 / 1.38663, you would simply read it as 1.3864 / 1.3866 by dropping the last digits. Then you can see that you have a spread of 2 pips. This is just to keep it simple. If you wanted to be precise, then in this example you would simple take 64.1 away from 66.3 to give you an exact spread of 2.2 pips. Me, I just round it up or down depending which side of 0.5 I am on, just to keep it very simple. I get plenty of practice as my broker deals in 5 and 3 digit quotes due to their data feed providers.

It is a little confusing when you see the extra decimal place and it does take a little getting use to, with a bit more concentration required. But it is not difficult if you just take your time and make sure you double check your prices before entering a trade. If it is an issue for you, then may I suggest you choose a broker that does not add the extra digit.

Next, I’ll discuss the different brokers and platforms available. This is a minefield in itself!

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With the previous demo account results I had running from MyFXbook, the results stopped updating last week and my investor password went missing so I decided just to close that account and start afresh. It was only a demo account, so nothing lost. I’ll keep it in my records in case anyone wants to see the details again. It closed with a balance of just over $14,000 and if my memory serves me correctly, it was from a starting balance of about $12,294 on the 1st July 2013.

Anyway I have opened a new $10,000 demo account with HotForex with leverage of 500:1 as of today (3rd Sept 2013). This account is called SMSF and you can see the results in the right hand sidebar in place of the old demo account. At the moment, I have only added a EUR/USD 1hr chart to it, which is running one of my EAs. This has had some pretty good results in back testing to date, so I have just lowered my base lot size initially just to see how it performs under forward testing. I will hopefully add further pairs once I have completed some further back testing, keeping in mind all currency pairs have different ranges and ways of moving in their trends. One size doesn’t fit all.

And as usual, if anyone wants some further info on any of my EAs or trading ideas, feel free to contact me at anytime. Everything is free, so it won’t cost you a cent just to ask.

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Just a couple more advantages of trading Forex.

So we we need somewhere to trade. As stated earlier, this is all done online via the internet. The good thing about this, is that most brokers offer unlimited demonstration platforms where you can practice trading for as long as you like without risking any of your own money. This is brilliant if you want to try out different trading methods and ideas. Commonly referred to as ‘demo trading,’ there is no reason that you can’t have both a ‘live’ and ‘demo’ account with the same Broker. Just make sure you don’t get them confused. read more…

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Well I have now set up a live account on MyFXbook that will monitor one of my accounts with Alpari UK.  I will be using one of my EAs for entries and then I will manually manage the trades as I see fit.  These will initially be on the 4hr charts so it gives me plenty of time to make sensible trading decisions.  Well that’s the plan anyway.  If all goes well, and if anyone is interested, I am more than happy to share my set up with you, including free access to my custom MT4 indicators and my own EAs.  If you look to the right hand sidebar, the top MyFXbook widget now refers to this live account.  There is also a little information on ‘My Trading Results’ page.

The pressure is on as I can already feel the eyes watching me…

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Let’s get into it! What do we trade?

There are several currency pairs that can be traded, but the majority of traders just stick with a group of about 8 to 10 pairs. That is more than enough choice.

First up, we have what they call the ‘majors’. These are by far the most heavily traded currency pairs, and a lot of traders are just happy trading one or two of these. The majors include:

EUR/USD – This is the Euro dollar against the US dollar
USD/ JPY – This is the Japanese yen against the US dollar
GBP/USD – This is the Great Britain pound against the US dollar, and
USD/CHF – This is the US dollar against the Swiss franc.

The Major Pairs

Notice how they are all against the US dollar, therefore when traders discuss these pairs, they simply just refer to them as the Euro, Yen, Pound (or Cable) and the Swissy.

Then we have what we call the ‘2nd tier pairs’ and these include the following;

AUD/USD – This is the Australian dollar against the US Dollar
USD/CAD – This is the US dollar against the Canadian dollar, and
NZD/USD – This is the New Zealand dollar against the US dollar

Again, these pairs are all against the US dollar, so they are simply referred to as the Aussie, Loonie and Kiwi. The term Loonie actually comes from the first Canadian dollar coin.

Then there are currency pairs which are simply called the ‘crosses’, and these involve non US dollar pairs. Some of the more popular crosses include:

EUR/JPY – This is the Euro dollar against the Japanese yen
GBP/JPY – This is the Great Britain pound against the Japanese yen, and
EUR/GBP – This is the Euro dollar against the Great Britain pound.

There are quite a few others, but these three are probably the most popular traded. A lot of traders actually like to trade their home currency as they feel they have a better understanding of it. Me, I’m Australian, but I rarely trade the Aussie as I am very comfortable trading the majors for the majority of my trades.

So what do all the numbers mean when the currency pairs are traded together?

The first currency mentioned is what they call the ‘base currency’ and it is being compared to the 2nd currency, which is called either the ‘quote currency’ or the ‘counter currency’.

If I watch my local news, and near the end they have a very brief financial report where the newsreader may say something like:

“The Aussie dollar was down today against the greenback, reaching a low of 71 cents”

Basically what they are saying is that the Australian dollar has dropped in value compared to the US dollar, and that one Australian dollar is equivalent to 71 cents US. As the US dollar is the major currency of the world, you will find most financial reports will compare your local currency to it, and even some of the other majors such as the Euro or the Great Britain pound.

Using this same example of the Aussie at 71 cents, if I were to travel overseas, say to the US where I would need US dollars, then I would be hoping for as high a rate as possible so I get more for my Australian dollar. So if the exchange rate moved up to 75 cents, then one Australian dollar would be worth 75 cents US.

You may see the quote for the AUD/USD similar to this: 0.7125 / 0.7128

First of all, the quote shows how many units of the quote/counter currency are needed to buy one unit of the base currency. In this case, the US dollar is the quote/counter currency and the Australian dollar is the base currency.

Confused yet? I hope not as there is plenty to come, and even though there is a fair bit of information, it does get easier to understand as you become more familiar with it.

Article Source: http://EzineArticles.com/?expert=James_Sheach_Brown

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As you know I’ve been trading Forex on and off for more than 10 years now.  It has been a long time where I have just about seen everything.  One thing I have experienced is Live Trading Rooms.  I’m actually in one as I type this.  It is on my 2nd monitor with the moderator yapping away in the background.  Not really interested in joining their program but there are times I like to see what other traders are doing and how they are looking at the markets.  One other reason is that sometimes trading can be a very lonely lifestyle, especially if you are a sole trader just trading from home.  Not sure about you guys, but none of my personal friends or family are Forex Traders, so I don’t really have anyone to talk to about it.  Therefore forums and trading rooms can sometimes get you involved in a like minded group.  There are thousands of retail traders around the world, and with the internet these days, the world is a small place.

Now to the Live Trading Rooms.  Other than the trading banter and the feeling of being involved in the market, are they a good thing?  One thing about them is that they mainly involve short term trading, usually taking trades off charts 1hr and below.  So basically they are either scalping or taking smallish swing trades that are session based.  So if you entered a room at the start of the London session, then you would normally trade this entire session and possibly into the US session, and about 10hrs later you may call it quits.  You would probably finish up with no open trades.  In the process you may have taken 2-20 trades during this period.  On the odd occasion you may have a trade left open that has taken off in your favour big time, so when you go to bed, that trade is in a position that it can’t lose no matter what happens when you are asleep.  Does happen, but not that often.

The problem with trading in live rooms is that it requires plenty of chart watching and plenty of concentration.  Trust me, I know this as I have done it plenty of times in the past.  It is hard work, especially at home when there are plenty of other distractions like TV, kids, housework and your significant other wanting to spend quality time with you.  It would be much easier if you actually left the house and went to an office to join the trading room, or even went and physically sat in a trading room.  More like a real 8hr a day job.  Another problem for me is my time zone, as being in Australia the London session starts around 6pm local.  Great time with regards to sleep etc as normally I could trade until 2am quite easily and then call it a day.  But from 6pm is normally the time everyone else is getting home from school/work and it is time for dinner/social events.  Even worse if you have a normal job during the day and then want to trade during the evening.  This is mentally and physically draining and not healthy for you.  Again, I’ve been there and burnt out big time.  Gone are the days I had a bed in my home office..

So what’s the solution?  I would strongly suggest that you ditch the live trading rooms.  Have a look and maybe learn a technique or at least get some ideas from them, but don’t become addicted to any one room.  I would say the same about forums.  Good to have a look every now and then, but don’t get hooked into them as they too can be quite addictive.  They are also a little dishonest for my liking due to the anonymity of the internet.  Don’t believe everything you read!  What I have found that works for me and gives me a much more balanced lifestyle, is trading off the 4hr charts.  I have a fairly simple system that uses my own EAs for entry on multiple pairs.  As these are on the 4hr charts, it gives me plenty of time to monitor the charts at my leisure, where I can then manually manage the trades as I see fit.  This can all be done around a normal job and your normal sleep patterns.  So basically I check my trades whenever I get a chance, but I won’t get too stressed if I can’t get to them for several hours.  And the beauty of modern technology is that I can do this from any of my mobile devices whether it be my laptop, iPhone or iPad.  I don’t have to be at my desktop computer.  I am a MT4 trader and have 4-5 live accounts with different brokers on the go at any one time.  All my broker’s platforms are set up on my VPS account which costs me about US$50/mth to run (cost of doing business) and using my Logmein App on any of my devices, I can access my desktop computer, which in turn gives me access to my VPS platform.  If I can’t be bothered with that, then there is the Metatrader App on the iPhone and iPad.  Great app if you are a MT4 trader.

Ever since I have gone out to the longer time frames, my trading has become way more relaxed with minimal stress.  I’m not saying there are no losing trades (I wish!) but due to the fact that you have way more time to make trading decisions, you actually have more time to make a better decision without being rushed or put under the pump.  Obviously your position sizes maybe smaller, but having said that, your stops maybe further out but so are your profit targets.  It is all relevant and works out in the wash.  Sure it is not as exciting as trading off the 5 min charts as there may be days without any trades, so it can be like watching paint dry at times.  That’s the trade off.

If you are interested in learning more about my trading style, you can either ask me directly via my email at accurateforextrader@gmail.com or you can just continue reading posts on this blog as I’ll eventually spill the beans on it.  I’m happy to share my custom MT4 indicators or any of my EAs with anyone that asks.  These are free just for being a reader.  So, what sort of forex trader are you?

 

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Below you will find a video of my SAR EA (Expert Advisor) in action on the 1hr chart..  It just gives an overview of how it performs.  I have had a couple of slightly different EAs built which are based on the same two custom MT4 indicators.  If anyone would like these indicators or any of the EAs mentioned on this site, just drop me an email and I’ll happily send you a copy at no cost.  Just keep in mind that there is risk involved, and even though they are trading robots, I would still strongly recommend that you watch them from time to time just to make sure they aren’t doing anything silly.  They are not perfect.  Best if you change the video settings to watch it in HD.  Just click on the little cog symbol at bottom right of video.

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Here I will discuss the trading times, and as you will see, there is ample time to trade Forex. As stated earlier, it is a market that is open longer than it is closed. As most people would be aware, if you were trading stocks, then you would trade these through an exchange, whether it was the New York Stock Exchange or the Australian Stock Exchange. Forex trading does not have any central exchange as such. All trading is done through the banks or market makers, which are basically the brokers that traders like you and I would use.

Forex trading follows the world’s time zones and is broken down into three major time zones. The first to open is Asia, which includes New Zealand, Australia, Singapore, Japan etc. This is called the Asian session and is normally the quietest of the sessions with regards to trading volume. This is then followed by the European session. In the meantime, traders in the Middle East are kicking in, and then all the major European centres, where eventually London opens. The European session is the main session as it normally has the greater volume traded. You have to remember also that London is the financial capital of the world, even though most people think it is Wall Street in the US.

Forex Trading

The last session to open is the US session, and this session can also be very frantic, especially early in the day where there can at times, be major news releases that have a big effect on the US dollar itself. So we have the three trading sessions, which do overlap each other. There are no set times, just when banks open for business in each major financial city and volume picks up. For me living in Australia, I know that during the day here, it is the Asian session, followed by the European session which kicks off at about 5pm, followed by the US session at 11pm. I am normally in bed by 2am at the latest, which would be getting close to lunchtime in the US. But in a nutshell, you can trade at anytime, but if you intended on trading the London open and you lived in the US, you may have to set your alarm clock and get up very early in the morning. Every time zone has its advantages and disadvantages.

There are plenty of free online time zone type clocks available for free that relate to the different session times, so it is quiet easy to find a session or session that suits your lifestyle.  If you want, just look over to the right sidebar and you should see a widget with a map of the world that shows you the status of each trading session.

Article Source: http://EzineArticles.com/3154160

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Forex TraderBecause the Forex market is running continuously for 24hrs during the week, there is very little gapping, which can be a common problem with stock trading. For example you may have bought XYZ stock at $24.20 on Tuesday just before the market close with a stop loss set at $23.50 to protect you against any major losses. During the night, when the market is closed, there is a major announcement that affects the company trading as XYZ, and the market opens on Wednesday morning, with XYZ trading at $22.10. Not only has it gapped down $3.10 overnight, it has also opened $1.40 below your stop loss giving you a much bigger loss than you ever anticipated.

This rarely happens in Forex trading, but having said that, it can happen, especially over the weekend as this is the only time the Forex market is closed. But it is rare! I can give you one example where I was caught out on a weekend. Late 2003 I was in open positions over the weekend where I was basically going against the US dollar, and then US troops captured Saddam Hussein. This was very positive for the US dollar, which then opened much higher on the Monday inflicting some financial pain my way. I have learnt my lesson and I am rarely in open positions over the weekend.

As you will soon see, with regards to Forex trading, you only have a small amount of currency pairs to choose from. This is a very small basket compared to the number of stock choices you have. On the US stock exchanges, there are literally thousands of stocks to choose from. Here you have the problem of finding a needle in a haystack. You will see that your Forex choices are much, much narrower, hence there is certainly a lot less searching and analyzing required. All your efforts and concentration can be targeted in a very narrow field, so you can get on with the trading sooner than later.

Once you have a look at a few different Forex charts, which I’ll discuss later, you will see some very nice smooth trends that seem to occur quite often. Now this is something that you may not understand if you have never traded a financial instrument before, especially if you have never looked at charts. For those stock traders out there, you would be very aware of stocks that just get stuck in a range for what seems forever, or stock charts that show plenty of gaps and a general ugly sort of look. I’m not saying that Forex doesn’t range. It does, trust me, but when it breaks out, it is normally something very good. You will understand this once you start looking at the charts.

The low cost of trading is also important. Most trading is conducted electronically over the internet on your nominated broker’s online account. The cost is minimal for each trade as there is normally no commission involved, however you do have to cover the spread. This will be explained shortly, but it can be very cheap to trade considering some pairs now have less than one pip spread.

Further to the low cost, you can open an account with a broker for a very small amount, and in some cases, just a couple of hundred dollars. Granted you are not going to make millions from this, but it is a start. I will cover brokers later.

Stay tuned for further….

Article by Jim Brown

Article Source: http://EzineArticles.com/3095197

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You are probably wondering why I am even building this website. Fair question I say. There is no real need for me to tell the world about my forex trading or experiences in this field. I could quite simply just keep on trading my own accounts, slowly but surely building my account size without any other distractions. But I am a sucker for punishment and like to keep my brain active. Trading off the 4hr charts using a semi-automated EA isn’t exactly time consuming, so I have plenty of spare time on my hands.

Completing this website not only helps up and coming forex traders gain extra knowledge, it also helps keep me accountable. I wish I had started this thing several years ago as it might have saved me some money and accounts. There is no doubt about, forex trading can be an emotional roller coaster. Things sometimes go well and other times not so well. I always figure if you can’t sleep when you have open trades, then you are in the poo and it is best if you do something about it pronto!

By me posting my methods and also my trading results, it ensures that I put an effort into my trading and take it a little more seriously. There may not be anyone reading this website or there maybe thousands (I wish) reading it. I don’t really know at this stage, but that’s not important. All I know is that somebody out there in this great big world will read about it one day, so that is enough to keep me motivated and hopefully profitable.

Education is also important to me. I started looking at forex back in 2002. Things were a lot different then and most of my education came from trolling trading forums to see what I could pick up along the way. Nowadays things are a lot easier, but having said that, the market is also saturated with scammers and other low life’s that just want to relieve the wanna be trader of their hard earned cash. So from what I have learnt and published over the years, I figure that I can help guide the new traders through this minefield without all the hassles and just make their trading adventure a little easier.

Ultimately if I can prove my trading expertise in the public domain, then I would consider making my services available as a fund manager, which basically means trading other people’s money. First I have prove myself with real money in real trading accounts. Tools like MyFXbook help achieve these outcomes.

So that’s about it and the reasons I am doing this. I do enjoy helping others, so that is probably the main reason behind it all. The other stuff will take of itself as long as I do the right thing by others…

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Forex TradingSo you have heard about Forex Trading and you are now curious to check it out, but really don’t know where to start. Well you have come to the right place, as these articles will take you through the basics and give you enough information to at least get started in the exciting world of Forex trading. I will explain Forex in a plain and simple manner that will give you enough information to get started sooner than later.

First up, what is Forex? Forex is the common term used to describe Foreign Exchange. It is also called currency trading, or just FX trading, and every now and then you may see it referred to as Spot FX.

It is essentially the trading of the world’s various currencies. Trading currencies is a little different to trading shares or stocks, as currencies are traded against each other. What I mean by this is that you are comparing one country’s currency to another country’s currency. It is not as confusing as it sounds, so bear with me.

Why would I want to trade Forex?

Good question! Most people have heard about trading stocks, maybe even futures and options. They have been around for years and your grandparents may have even traded them. But I guarantee you that they wouldn’t have traded Forex, unless they were exceptionally wealthy individuals or worked for a major bank.

It is only in the last 15 years or so that the retail Forex industry has opened up to the likes of you and me, where you can start trading with a very small deposit into a brokerage account. Obviously the popularity of the internet has helped create this boom as about 99.9% of all transactions are carried out online.

But why Forex?

For a start it is by far the most liquid market in the world that runs 24hrs a day for 5 1/2 days of the week. Just to give you an idea of what I mean, here are some figures from a 2007 survey:

There is a $3.2 trillion average daily turnover which is more than 10 times the average daily turnover of the global equity (stock) markets combined. That is all the equity markets in the world like the New York Stock Exchange, the London Stock Exchange, Australian Stock Exchange and so on. This equates to nearly $500 per day for every man, woman and child on earth.

These figures are huge! There is no other way to put it. But obviously that doesn’t really affect the average trader other than giving that trader very good liquidity, which means if you want to buy or sell any of the top 10 currency pairs, there is never an issue of that pair not being available to trade. Also with this much volume on a daily basis, one average trader like you and I have absolutely zero chance of influencing market direction.

Pretty simple so far… stay tuned for more

Article by Jim Brown

Article Source: http://EzineArticles.com/3032703

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Sometime ago I wrote a number of Ezine articles about forex trading. These pretty well cover the basics of trading in a very simple way so even the absolute beginner could understand and have enough confidence to at least start demo trading. I will reproduce these articles on this site, and hopefully won’t get Google slapped for copyright infringement, even though I am the original author. There may be a few minor tweaks as obviously I have learnt a few things since and probably have changed my way of thinking on a few of the topics.

I have a strong interest in developing my own forex trading systems, where I then convert these systems into EAs. Well I don’t actually do that, as I get my gun Programmer, Christina, to do it for me. She runs a company called Wise-EA, and if you need any programming done in this space, I highly recommend her. Maybe I should learn programming myself and save a few bucks. Looks too confusing to me, but you never know, maybe one day.

EA is short for Expert Advisor, which is just a flash name for a trading robot software that is attached to your trading platform that takes trades on your behalf depending on what your stipulated trading rules are. They are great for making sure you don’t miss entries and also take the emotion out of entering trades. But do not think that EAs are the be all and end all. They do have their limitations and can’t think like a human brain. I tend to use them for entry only and then manually manage the trades from there. However I do know that if I can’t get to my trading platform for whatever reason, I know the EA will look after things until I can get back to my charts.

Forex trading is not easy, but if you can be consistently profitable with it, the rewards can be great, whether this means lots of money, getting out of your current job, working your desired hours, more family time, working from anywhere you wish etc etc. I’ve been doing it on and off for just over 10 years now (I am a slow learner), made plenty of mistakes along the way, but now slowly but surely getting it together. It hasn’t been easy, and at the end of the day, it is just a matter of keeping it pretty simple and using good money management. I love this stuff, so there will be plenty more to follow, including all of my Ezine articles….

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Welcome back to Accurate Forex Trader!  I have been missing for a couple of months due to the fact that my web hosting company went wheels up, taking all my data and 20+ websites with it.  Bit of a bummer, but at least I learnt a valuable lesson, and that’s to back up everything.  So now I have to start from scratch, so this site will be a work in progress.  This site will be dedicated to my Forex Trading, but if you want to know a bit more about me and my thoughts, you can go over to JAGfx.com and here I will discuss many things that interest me, including my trading.

To get the ball rolling, I have had a new EA built called SMSF which I am currently forwarding testing on a demo account.  This demo account does have a link to MyFXbook which you can see below.  This is a demo account I have had for a while now which started with a balance of $10,000. I began testing this EA on the 1st July when the balance was at $12,294.77. I am also testing it in a small way on a live account.  I’ll update details on this later.

Warning and Disclaimer : Something I have put here is to advise everyone that Forex Trading is risky. You could lose some or all of your money if you trade forex. I think that is pretty obvious to most, so this warning is just aimed at the minority. It may look easy this forex trading, but believe me it isn’t, and you will suffer losess along the way. The trick is to win more than you lose overall. Anything I write on this site is not to be considered financial advice, so don’t follow my trading. Everything I write here is just my opinion or what I am doing in my trading. I cannot give you specific trading advice. So be warned, this trading can be a risky business, so protect your capital so you live to trade another day.

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