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Online Forex Community
“Helping Traders Makes Sense of the Foreign Exchange Market"
This Week in Forex
The past week was quite exciting as the previous trend toward USD weakness roared back into play. This newsletter has been speaking of the bearish Dollar trend for some time now. It is clear that once any latent concern over economic recovery is more or less over the trend we saw in pre-crisis 2008 should like return. That is, commodities, such as gold and oil (priced in Dollars) will continue their bull run and all risk assets (including equities) should definitely go much higher as well. After the worlds’ governments seemed to underpin the investment markets with their stimulus packages it seems the market has no desire to go lower. In fact, it is clear that every retreat to lower levels is inevitably turned around by any glimmer of hope (such as green shoots). Clearly, the market would like to get back to its old ways.
That is fine for Forex traders as the size, character and liquidity of the FX market easily lends itself to quick profits and versatile investing. The so-called ‘safe haven’ currencies (the USD and the JPY) will still play their respective roles in times of need. It is possible that we see a pullback in the equity markets especially over the Holidays and New Year, but the longer markets trade at current levels, consolidating and range trading, the more likely we will see big moves higher before any concerted and extended selling. With all the money left on the sidelines after the surprising move in equities since March (including my own), the market is only further underpinned by ‘hot money’ inching its way back in.
At this point, shorting the Dollar and the Japanese Yen (not the USDJPY pair itself) seems like the call du jour. What could change this? Frankly, little save the wholesale collapse of more major institutions which seems virtually impossible given the lengths and efforts world governments went to in order to avoid the first meltdown. Gold, oil and ‘risk assets’ will continue to go higher it should only be a matter of picking your entries. Trade smart and be nimble. Happy trading!
Forex Trading Commentary
Helping Traders Build New and Improved Trading Skills: Forex and Discipline
Discipline is a topic that Forex traders are all too familiar with. In fact, discipline could be one of the single most important and pervasive elements in Forex trading. It is true that trading currencies can be a highly rewarding experience both personally and financially, but it can also be gut wrenching at times as well. The reasons for this are many but one aspect that is very common is the ability of a trader to follow rules. It is really very simple in Forex trading. When one trades with discipline they dramatically increase the chances of success; and when you overlook this point you are destined for failure.
There is no consistently successful trading system in the world that does not have a set of rules that define its methodology and structure. Whether it is based on indicators, news based trading, long term trading or scalping any strategy that is used by traders to make money has principles and guidelines. Therefore, it stands to reason that if you forget one of these steps or overlook some procedure the product of your trading will be less than scientific. If you trade with discipline, but stray from your plan on one or two trades you may still get profits though you are not a disciplined trader. Discipline must be practiced on every single trade.
Many traders keep a log of each trade they make. They do this to add structure, deepen understanding and add order and restraint to their trading. If you were a fighter pilot you would be forced by your command to check and recheck dozens if not hundreds of operating procedures before taking off. That is because a lot of money and potential loss of life are on the line. While you may not die trading the Forex you sure could lose a lot of money. So it pays to stay focused and adhere to rules.
Similarly, may traders create a written trading plan and even go so far as to post it next to their monitor or trading station. This is so that you have a set of rules to govern your behavior. If you do something that is not on your plan then you will know that what you have done exceeds your allowed parameters. You’re on your own, you can be rest assured that you are unprepared for the potential consequences of your actions.
You must know your limits and not cross them. You must set those rules that preside over your trading activity and adhere to them always. Once you speculate on a trade that does not comply with your strategy you will have already started being undisciplined. Similarly, if you stay in a trade too long ignoring your stop loss you have also done something that NONE of the world’s biggest, most disciplined traders would ever do! The fact is that trading with consistency builds both confidence and control (not to mention optimism). Try to make the same types of trades over and over again. When you win you should not compromise your standards. You should never expect to win big. Play by the same rules each and every time. Success in Forex is often times much more boring than one would ever think. Success comes by consistency, methodology and by being conservative.
Trader Tips
Create the Best Trading Situation: Forex and the Trading Plan
Making money in Forex, while not easy, is definitely possible. People from all around the world and all walks of life do it each and every day. They may not become fabulously wealthy (though certainly some do) but many use their spare time where they might otherwise be reading a book or watching TV to significantly augment their total monthly income. Forex is a fabulous hobby and even better part time job. Trading currencies could be described as a magnificent obsession whereby one can invest time and effort understanding the mechanics of how the market trades often in return for a monetary reward.
Those that consistently make money usually always follow a plan or given methodology. Whether you get your trading strategy from others or develop it on your own you need to create an actual, physical trading plan. Most will overlook this suggestion and may continue to trade even with net profit. However, there is no denying the important guiding and restraining aspect a good trading plan will have on the trader. Any trader will immediately benefit from putting their trading thoughts and down on paper. If anything, it will help to elucidate the process of taking a trade. Certainly, there are many factors that go into making the decision to trade, so it stands to reason that enumerating these considerations clearly will only help to add structure and help to create discipline.
For example, it is ALWAYS necessary to check what potential economic indicators will be announced during the trading day and consider how they might impact your trading. A quick glance at a site like Forex Factory could be the difference between a careless loss and a huge win. In addition, obeying written rules to always add stop losses to each trade will help you to avoid the urge to hold your trade in the event it ‘comes back your way’.
The problem most traders have is that they become lazy and start to trade on a whim. This is the first step toward disaster. If you do not have the discipline to make and follow a trading plan then Forex trading could be a long, hard road for you. It is so critical to acknowledge this and put it into practice. You may spend a long time putting your trading plan together and it definitely will always be a work in progress.
Take your trading plan and treat it like a guide. Write down all the types of trades you want to look for. Add your favorite indicators and explain how they are used together. Mark down the rules that you must meet to trade and make sure to add the do’s and don’ts of trading as well. There are many great ways to train yourself to use a strict method in trading and making an actual, physical trading plan is one of them.
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