Forex Trading: The Most Common Flaws

Flaws due to multi indicators and due to the principle of confluence:Many traders are very much attracted to the sophistication offered by the multi indicators and use them in their forex trading systems. Many of the confluence system indicators show the price movement and in no way adds any value to the trade. Due to this, the traders either end up over bought or over sold technical indicators like the stochastic, momentum indicators, candle stick chart pattern recognition, Bollinger band breaks out even neural networks which are supposed to be artificial intelligent systems. The technical indicators just show signals which are similar to buy or sell or hold, making the signal generated to be correct. Theoretically it sounds good but in reality to arrive at a conclusion might be difficult. As a result the traders are confused in making a right decision. They either enter too late or too early or remain still without being able to make a decision to enter the market. The major flaw is due to the use of useless trading system which does not serve the purpose to make profits, but confuses the traders and complicates the forex trading until the trader loses.Another dangerous flaw found in forex trading is of an emotional nature interwoven into the process. It is fear and greed of the trader. A profitable forex trade can lead to exuberance and over joy, but this is the time when greed comes in and crosses the aspects of risk management. When a trader is hooked to winning, out of greed he over-rides all aspects to see more and more profits, only to see them crash to earth. They wait for the prices to regain, but in dismay may some time and with worst possible losses. This is the time when fear crops up and paralyses the trader not making him to open up any position. Hence while trading, the trader should not override the emotional side of trading, stick to discipline of the trade which can prevent them from committing the flaw of forex trading.Another kind of flaw can happen when the trader is an unconcerned person or the one who is lazy, or with no drive to gain profits or feels the need to be profitable. These people would have entered into forex trading due to hearing it as an easy game. For them it is not a trade which involves skill, trade management, preparation and re-investment. It is a fun game for them, where loses do not make any difference to them. Such persons make a wrong footing, with a wrong objective.Flaws in forex trading due to the inadequate knowledge of the trader: Some of the losers start with good purpose in the trade. Even though they had gained some knowledge from here and there they might find it difficult to apply them practically in the trade. Inadequate knowledge might be the major flaw which stops them from achieving success.

Risks by the foreign exchange on Forex

The Forex is essentially risk-bearing. By the evaluation of the grade of a possible risk accounted should be the following kinds of it: exchange rate risk, interest rate risk, and credit risk, country risk.Exchange rate risk. Exchange rate risk is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. For the period it is outstanding, the position will be subject to all the price changes. The most popular measures to cut losses short and ride profitable positions that losses should be kept within manageable limits are the position limit and the loss limit. By the position limitation a maximum amount of a certain currency a trader is allowed to carry at any single time during the regular trading hours is to be established. The loss limit is a measure designed to avoid unsustainable losses made by traders by means of stop-loss levels setting.Interest rate risk. Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book. This risk is pertinent to currency swaps, forward outright, futures, and options (See below). To minimize interest rate risk, one sets limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the dates of the delivery, gains and losses. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.Credit risk. Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party. In these cases, trading occurs on regulated exchanges, such as the clearinghouse of Chicago. The following forms of credit risk are known:1. Replacement risk occurs when counterparties of the failed bank find their books are subjected to the danger not to get refunds from the bank, where appropriate accounts became unbalanced. 2. Settlement risk occurs because of the time zones on different continents. Consequently, currencies may be traded at the different price at different times during the trading day. Australian and New Zealand dollars are credited first, then Japanese yen, followed by the European currencies and ending with the U.S. dollar. Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments.Therefore in assessing the credit risk, end users must consider not only the market value of their currency portfolios, but also the potential exposure of these portfolios. The potential exposure may be determined through probability analysis over the time to maturity of the outstanding position. The computerized systems currently available are very useful in implementing credit risk policies. Credit lines are easily monitored. In addition, the matching systems introduced in foreign exchange since April 1993 are used by traders for credit policy implementation as well. Traders input the total line of credit for a specific counterparty. During the trading session, the line of credit is automatically adjusted. If the line is fully used, the system will prevent the trader from further dealing with that counterparty. After maturity, the credit line reverts to its original level.Dictatorship risk. Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Although theoretically present in all foreign exchange instruments, currency futures are, for all practical purposes, excepted from country risk, because the major currency futures markets are located in the USA. Hence, traders have to realize that kind of the risk and be in state to account possible administrative restrictions.

Forex News Trading Tip: How To Trade The FOMC

The Federal Open Market Committee (FOMC) decision on interest rates is one of the most powerful market movers in the forex market and when the markets move traders trading the news have the opportunity to make money. The FOMC sets the discount rate or federal funds rate and because interest rates are set higher to induce foreign investment and therefore fight inflation during times of prosperity and lower to increase spending during recessions they are one of the main factors influencing the strength of the dollar. Economic indicators play a huge role in the forex trading especially for traders who approach the market through fundamental analysis and trade the news. The Federal Open Market Committee (FOMC) interest rate decision is one of the most influential indicators for the US dollar and you can be sure after the news is released there is going to be volatility in the markets and volatility is what traders thrive on. I have heard many 'traders' say never to trade the news and especially the FOMC. Although the FOMC interest decision is a news event and can fall under the category of through fundamental analysis I am a technician and I believe that charts always price everything in. However I guarantee the market does not know what exactly the Feds comments and decision will be, therefore it is not priced in yet and this will cause the markets to react when they do find out. This is confirmed by the change in price after the decision and the continuation in the days following. I have been trading the Fed for eight years now and yes I have been burnt in the past and that is exactly how I have come to learn how to trade it properly. The most common pattern to trade the Fed is the whip-saw. But do not be fearful of it, embrace it. Here is how it happens, first there is a large spike one direction (traders come in and follow that direction)followed by a large spike in the opposite direction (those same traders now sell their first position at a loss and reverse their position - this is when I take a position in the direction of the original move)followed by an extended move back in the direction of the original spike (all the emotional trades are left sick to their stomachs) and I am left holding a very nice position setting myself up to capture a larger than average market move. If this pattern does not play out exactly as outlined I stand on the sidelines and do not trade at all. Because the markets are moving fast in the period following the FOMC interest rate decision I am watching a very short time frame, mainly the one and five minute charts. Jordan Lindsey is a professional trader who's personal forex trading group 'Conquering The Markets' utilizes his forex trading strategies to trade his forex trading systems with sound money management and together work toward helping people all over the world live better lives.

Forex - What is it?

The international currency market Forex is a special kind of the world financial market. Trader’s purpose on the Forex to get profit as the result of foreign currencies purchase and sale. The exchange rates of all currencies being in the market turnover are permanently changing under the action of the demand and supply alteration. The latter is a strong subject to the influence of any important for the human society event in the sphere of economy, politics and nature. Consequently current prices of foreign currencies evaluated for instance in the US dollars fluctuate towards its higher and lower meanings. Using these fluctuations in accordance with a known principle “buy cheaper – sell higher” traders obtain gains. Forex is different in compare to all other sectors of the world financial system thanks to his heightened sensibility to a large and continuously changing number of factors, accessibility to all individual and corporative traders, exclusively high trade turnover which creates an ensured liquidity of traded currencies and the round - the clock business hours which enable traders to deal after normal hours or during national holidays in their country finding markets abroad open.Just as on any other market the trading on Forex, along with an exclusively high potential profitability, is essentially risk - bearing one. It is possible to gain a success on it only after a certain training including a familiarization with the structure and kinds of Forex, the principles of currencies price formation, the factors affecting prices alterations and trading risks levels, sources of the information necessary to account all those factors, techniques of the analysis and prediction of the market movements as well as with the trading tools and rules. An important role in the process of the preparation for the trading on Forex belongs to the demotrading (that is to trade using a demo-account with some virtual money), which allows to testify all the theoretical knowledge and to obtain a required minimum of the trade experience not being subjected to a material damage.

A Short Introduction To FOREX

FOREX is the worlds largest and most liquid trading market. Many consider FOREX as the best home business you can ever venture in. Even though regular people have had the opportunity to take part in trading foreign currencies for profit (in the same way banks and large corporations do) since 1998, it is just now becoming the cool, hip, new "thing" to talk about at parties, business events, and other social gatherings.Even though it has been somewhat of a loosely guarded secret, every day more and more investors are turning to the all-electronic world of FOREX trading for income and profit because of its numerous benefits & advantages over traditional trading vehicles, like stocks, bonds and commodities.But, still, whenever something seems new or is just becoming a part of social conversation, news articles, and water cooler gossip, misconceptions have to be overcome, the mindhas to be open and the slate has to be clear for starting out fresh with the CORRECT information.So, in this article, it is my attempt to give you some solid, but not over-detailed, information on just what the heck "FX" (FOREX) means, what it is, and why it exists.As a successful trader said, Trading FOREX is like picking money up off the floor. Not trading FOREX is like leaving it there for someone else to pick up." Others in the industryhave also said, Trading FOREX is like having an ATM machine on your own computer.Here's an explanation (one I feel you'll appreciate) of what FOREX is and how a bunch of traders, profit from it:The Foreign Exchange Market, also referred to the "FOREX" or "FX" market, is the spot (cash) market for currency.But, don't mistake FX as trading the futures market, where you buy a contract to purchase a particular currency at a future price in time.What FX traders do is much less risky than trading currencies on the futures market, much more profitable, and a lot easier, than trading stocks.So, you're probably wondering where it's at ... or ... how to access the FX market?The answer is: FX Trading is not bound to any one trading floor and is not centralized on an exchange, as with the stock and futures markets. The FX market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.Yes, if that's the first time you've heard about an all-electronic market, I know this may sound somewhat intriguing to you.Here's what you are actually trading when you participate in the Foreign Exchange (FOREX) market:Essentially, like the large banks who use the FX market to protect themselves from the fluctuating exchange rate of different currencies, as an investor, what a FX trader is doing issimultaneously exchanging one countries currency for another. So, in actuality, they're electronically trading a currency-pair and the price that is quoted to us is the exchange ratebetween the two currencies.In other words, simply the quoted price is how many of the one currency is worth 1 of the other currency.Example:EUR/USD last trade 1.2850 - One Euro is worth $1.2850 US dollars.The first currency (in this example, the EURO) is referred to as the base currency and the second (/USD) as the counter or quote currency.The FOREX has a DAILY trading volume of around $1.5 trillion dollars - 30 times larger than the combined volume of all U.S. equity markets. This means that 1,498,574 skilled traders could each take 1 million dollars out of the FOREX market every day and the FOREX would still have more money left than the New York Stock exchange every day!The FOREX plays a vital role in the world economy and there will always be a tremendous need for the FOREX. International trade increases as technology and communication increases. As long as there is international trade, there will be a FOREX market. The FX market has to exist so a country like Japan can sell products in the United States and be able to receive Japanese Yen in exchange for US Dollar.There's plenty of money to be made using FOREX for plenty of traders that use the right trading techniques / tactics that will allow them to profit immensely. And, with only 5% of the daily turnover of volume coming from banks, government and large corporations who need to hedge,the other 95% is for speculation and profit.

What is Online Forex Trading Really About?

What is Online Forex Trading Really About?The foreign exchange market which is popularly referred to as forex is primarily concerned with the trading of currencies of different countries of the world and this trading is based on an exchange rate or a relative value which is determined more often by various external factors.Online forex trading refers to the trading of currencies or foreign exchange which is facilitated with the aid of the wide network known as the internet. It must be noted that internet marketing is extremely conducive to trading as it is open for the entire day except on weekends and since the internet transcends geographical boundaries, the range of investors are also not limited and therefore the rate of trading is also high..The primary requirement in case of online forex trading is to ensure an online trading platform which is available in the form of a trading portal which is supported by an alluring and user-friendly interface and this is to be supplemented by the presence of charting and technical details to aid the investor.Physical trading versus the InternetIn case of forex trading in the internet there is virtually little difference in functioning as in forex trading there is no physical exchange of currency involved and all forms of transactions are deducted or added directly to the account of the investor.A significant function of the forex software is to quote forex rates, which are rates that can be used for trading and are not synonymous with the bank rates and it is also necessary for the forex software to ensure that the present exchange rates are also displayed from time to time following alterations.In this case the user does not require installing or downloading any form of other software applications. The availability of an internet connection is enough to provide them access to the web-based user interface.Forex trading backgroundInitially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value.In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.

Bear Strategies

Bear StrategiesDescription:Many people believe that US will inevitably fall into recession levels; that basically means that no matter which stocks you own, they will probably go down, as it has happened over the last 3 months.Article bodyBear StrategiesMany people believe that US will inevitably fall into recession levels; that basically means that no matter which stocks you own, they will probably go down, as it has happened over the last 3 months.Microsoft, the software giant, has fallen 30%. Google, decreased its value from 747 to 430, almost 50%! In general, the Dow Jones Index, Nasdaq and S&P deceased an average of 30% in only three months.If you think the worst hasn´t yet arrive, the following are excellent options for making money in bear markets.1- ETF´s that replicate the inverse of some sectors• SKF, ultra short financials, seeks for results that are as twice as the inverse of the Dow Jones US Financial Index • QID, ultrashort against nasdaq 100 • DOG, ultrashort against Dow Jones • REW, ultrashort against the tech sector My personal favorites are SKF and REW, since recession generally affects in a deeper way to financials and tech stocks. Nevertheless, they are subject to intense volatility.2- Depreciation of the Dollar and Commodities• FXE, reflects the price of the euro. If the dollar depreciates against the euro, this index will gain • FXF, swiss franc versus dollar • FXY, yen versus dollar • DIG, ultra oil and gas, gains value as natural gas and oil increase its value • GLD, simillar to DIG but with Gold The first three belong to the world bonds family, as they are known, and are non-diversified.Recession generally involves that commodities decrease it´s values, so this isn´t the best choice for it. But they function very well because investors tend to place their money in commodities replacing stocks. Besides, if the FED continues to lower the rates, it is very likely for the past world bonds to gain value.3- Finally, between my favorite bear strategies, but less aggressive than the previous options, buying anti-cyclical stocks is a valid option. These tend to be the beverage, health, pharmaceutical and consumer sector.• JNJ. Johnson & Johnson is a very solid company, with net cash (more cash than debts), increasing dividends and excellent management. • KO. Coca Cola, has a very good past performance, with similar characteristics to JNJ. Both of them are some on the options that guru Warren Buffet, actually the richest man on Earth, decided to invest in. • PHG. Philips, has an incredible PER of just 6,5 and is growing fastly. There are some more examples, but I stated only three nice anticyclical stocks.Therefore, investors should know that they can make many no matter if we are in a bear or bull market.