2Bull Forex Blog

This article aims to uncover the many myths that exist about trading the forex market and all the promises and lies that exist. The main target is to be realistic, honest, and down to earth because marketing is a very good friend but can also be a terrible enemy.

So we start with the synopsis of what is truth and what is not and what is the main enigma to be solved. Here we go : Truths : The forex market is the largest and the most liquid financial market at this moment and probably will continue to be as daily transactions are far beyond the transactions made by the major US stock markets. There are no commissions in forex market. Truth and false the same time. There are not but it is hidden with the spread of 2-3 pips in most brokers. The brokers win from the pip spread so the difference is their commission. There is a lot of potential in terms of huge profits as there is a great leverage in most cases over 100 times. Most technical analysis of stocks, commodities etc apply to the forex market so if you know about it you can trade with more confidence the forex market. The forex market trends well so if you follow the trend and do not fight it the chances are that you will make money. True but also requires further explanation. This is next.

Ok. So now let’s refer to all the lies, promises and marketing promotion ideas. It is easy to make a fortune in the forex market very quick and easy. That is why most people fail and lose their accounts completely in a very short time. Remember what I said about the leverage earlier? With up to 100 times it is great when you are right and awful when you are wrong. Most brokers entice people to open a small account with 200-300 USD just to trade their platform live. Very soon this money is vanished and you are left wondering what happened. Some claim that they make extraordinary profits every month. It is possible but in most cases is not, it is just bait. The worst of all is when they promise that you can learn trading in a very short time and open a new account to trade just o lose the whole amount very soon. And by the way today as it is the first friday of the month is the best day for brokers and the worst day for traders as there is the release of Non Farm Payrolls. For brokers it is a paradise as they earn from your trades in a very unpredictable way on this day. For traders it is a nightmare as they could win big or lose a lot within seconds. It is just not worth trading this day.

So to recap. The forex market is the best market in terms of market efficiency, depth and is definitely worth taking a look if it is only ok with your level of trading experience, risk tolerance and investment horizon. It requires a lot of research and paper trading first and is a market that you can win a lot or lose everything within days. So do a lot of extensive home work. Start with a business plan and first with the answer to the question why do I want to get involved with this market? Am I sure to make it? Or is it best to spend my money elsewhere? At least I will enjoy some shopping etc.

Successful trading in all markets requires a lot of hard work. Nothing comes easily. When it comes to forex trading definitely it is not easy to make a fortune as promised. It is not impossible, but it will not happen in a few days and if you do not apply from the beginning very strict money management rules. And above all be realistic. Do not spend your money away particularly on a day such today with the NFP coming out. Invest in knowledge, experience, self-control, desire and motivation to succeed and be realistic. Marketing is a great tool is used properly.

When the Ten Commandments were brought down from the mountain top, it was noted by several onlookers that they were engraved on stone tablets. Granted paper wasn’t in great supply nor were there any Bic pens on hand. It was also noted that these weren’t suggestions. They were commands from the almighty.

As a trader, I’ve learned a lot over the past 25 years. If the commandments were for all mankind, then why not have a few for traders as well. Here are my ten commandments of trading. We’ll look at the first 5 today and the other 5 in just a few days.

1. Discipline counts. As a former officer in the Marine Corps, the most likely place for me to start is with discipline. Pros have it - amateurs don’t. Traders who lack discipline are reckless and soon looking for another vocation. You must guard your trading capital as if your life depended on it - because it does.

2. Show no emotions. There’s no crying in baseball and there is no crying on the trading desk. Decisions are made based on “what is” not “what if”. Decisions made from the emotional point of view are flawed and you must steer clear of them at all costs.

3. Don’t follow the crowd. See what everyone else is doing and do the opposite. I like to be the first one at a party and the first one to leave. Why? The food is fresher and the idiots haven’t ruined it for everyone. What I want to do is to fade hope, buy despair and know where the exit is. It’s the first law of the jungle - if you don’t know who lunch is - it’s you.

4. Survival of the fittest. In other words, to survive, you must adapt. There is a time to be long and a time to be short. There’s a time to take risk and a time to avoid risk. Know which is which. Times and conditions change and you must do the same if you wish to survive to play another day.

5. Patience is a virtue. As a trader, you need patience. You don’t have to swing at every pitch, but when you get your pitch, you better swing. Be patient and pick your spots. The trades that are right for you will find you.

6. What is - “might be”? This is an absolute - perception is reality. It’s not what you think, but what the market perceives. Trading is an exercise in psychology and perceptions of what people think and feel determine supply and demand.

7. Respect. This one is the most difficult to put into words. One of the reasons that I trade off the floor is that I don’t want to get caught up in the movie. I want to avoid the hype at all costs.

8. When in doubt - stand to the side. When I was in the Marines, I served under a major who was undeniably smart but decidedly fly by the pants. He taught me to trust my gut instinct. If it doesn’t feel right, it probably isn’t. We all have a comfort zone and if wander away from it - we are all soon made aware of it.

9. Don’t be afraid to miss the train. If you miss a train, the next one comes along in ten minutes. Calm down - it’s not the end of the world. Newbie traders think that in order to be successful you must trade every trade. Nothing could be further from the truth. A .300 batting average gets you the Baseball Hall of Fame. In trading, if you win more than you lose, you win. During my trading career, some of my best trades were the ones that I didn’t make.

10. Never change your time frame. One of the hallmarks of a professional is that they never change time frames. In other words, a trade never becomes an investment AND an investment never becomes a trade. When I was a newbie, I had trouble with this one and it caused me more pain than you could ever imagine.

Professional traders have rules that they live by - day in and day out. The above are my ten most important and they aren’t suggestions. Trading is a rough and tumble business and not for the faint of heart. If you want to be successful, make your own list of commandments and stick to them. Remember, these aren’t suggestions.

Forex Trading can be a mystery even for experts. One thing is clear, if you want to have a chance to trade profitably you have to learn the basics.

Remember to start off small, then grow as your success grows! Keep in the back of your mind that almost anybody has to lose sometime. The winners in Forex Trading are those who win most of the time, whether that be ‘the big one’ infrequently or lots of consistent small wins.

There are people flying around in expensive jets without the money for their next refuel, and there are those looking to buy their next executive plaything. Then of course there’s the teenager down the street working on his first million and grandma who mysteriously just bought a new car. So watch your head, mind your wallet and be keep in your thoughts that this Forex trading stuff is not a game to be taken lightly unless you know how to play!

Do it right and Forex Trading can buy you almost anything, even if you start out with just enough bucks to buy your first e-book on the subject. Get it wrong… well, the big boys use big calculators!

So where do you start to learn about Forex Trading? There are hundreds of websites, e-books and tutorials dedicated to the subject. For example www.2Bull.com fulfils a function and offers great resources and books that can help get you started.

A number of the big online trading houses offer ‘trial’ accounts where you get to play with ‘dummy-money’ and see actual results over the trial period. When I tried it, I lost my shirt, but then, I didn’t do any reading and to be fair, I had in the back of my mind all the time that it wasn’t real money I was betting with. I must say, for a while there, I was hooked and one day I’ll give the matter serious attention (when I feel brave and have read enough!).

There are lots of variables involved with Forex that you need to keep in mind. In my own experiment, I realized that a good understanding of basic economic factors (like budget announcements) have a big affect on the markets. Seasonal changes, corporate announcements, big-mergers, war, terrorism are just some of other important variables that effect FOREX.

I figured that I could have increased my chances if I had a plan, one that included my target currencies and a thorough history of trading over the last five years or more. In my view, I would want to know when government budgets are announced, and have an understanding of previous movements at similar times. I would also want a clear history of exchange movements affected by top corporate announcements and world plot correlations with past profit announcements. You will also need to have a good ‘feel’ for the abnormal, like droughts, hurricanes, forest fires, violent episodes like war, massive infrastructure building projects etc. You also want to be alert to new discoveries that might bring prosperity on a national scale to your target currency, like oil finds, medical breakthroughs, even hosting the Olympics can be a major currency mover.

Remember that little movements mean massive sums of money have changed hands. Don’t be fooled into thinking that a half pip isn’t much. If you have a chance to make money - take it and move on to your next trade. Don’t get all head-strong and greedy!

Above all, read what the experts have to say. Your best ever investment will be in your own understanding on the subject, so buy the books, read them all and then you will have a little of what you need to succeed in FOREX.

The 10 dumbest things investors say to advisors.

1} When my investment gets back up to what I paid, get me out. This is surely a big mistake. That stock has absolutely no idea that you’re waiting for it to go up so that you can sell.

2} The stock is selling at $3.00 a share. How much can I lose? $3 multiplied by the number of shares. Oh yeah, don’t forget to add in commission.

3} I want to buy shares of XYZ Company. Three years ago, they were selling at $60; now the stock selling at $5. You can actually make a lot of money investing in good companies when their stocks are out of favor (go to dictionary - look up: “Warren Buffett”). You cannot make money buying junk just because it’s cheap. (Same dictionary - lookup “cheap junk”). If this creates confusion - please see item 2.

4} The stock is up 10 % this past month. It’s too high, I can’t buy it now. Have you ever heard of a long-term uptrend? Just because you missed the bottom doesn’t mean you missed the boat. I’ve heard that the shortest time measurable by man is the time between when it’s too soon to buy a stock and when it’s too late.

5} I paid $60 for that stock 3 years ago. Today it’s selling at $4. I can’t afford to sell. I don’t want to lose so much. I’m just guessing here, but did you say the same thing at $30? $20?

6} I bought the stock at $10 and now it’s $35. I have too much profit. I can’t sell here. I don’t want to pay so much in taxes. My wish for everybody is that next year you have more than twice the profits and that you have to pay twice as much in taxes.

7} I never sell an investment at a loss. I’m a long-term investor. Eventually, they always come back. Ever heard of ENRON? Pan American Airlines? Polaroid? Penn Central Railroad? If I were to be your advisor for the next 20 years, I GUARANTEE you that you will have losses. Losses are a very important part of a successful investment program. Since the perfect human hasn’t been created yet, the perfect advisor hasn’t been created yet. Expect to have some losses and plan accordingly.

8} Sell my utilities; buy DOTCOMS. Stock brokers heard this, a lot, just a few short years ago. Every up cycle investment advisors are instructed to sell safe, but dull investments and buy something with sex appeal that’s moving. The worst possible thing has happened - one of the clients’ friends or acquaintances is making more money than they are. It’s the CINDERELLA story. They’ll look great for a short time. Then, the clock strikes “OVER” and their limo turns back into a pumpkin.

9} I know as much about the stock market as any broker. What would you think of me if I came to your place of business and told you that I know as much about your business as you do? Can you outperform a professional in the short run? Absolutely. You would never say this to your doctor, lawyer or accountant. You wouldn’t even say that to your butcher or your barber. Stock market investing is the only profession where the amateurs think they know as much as the professionals because they might have picked a winner at one time.

10} That total stranger made the investment sound like such a great idea. Of course he did. That’s his job. Do you remember your mother telling you “Don’t talk to strangers.”? When was the last time you ran with scissors? If you develop the practice of giving your money to strangers, sooner or later, you will come to harm. Or, as Al Capone used to say “Anybody found sleeping in the trunk of a car, deserves to be shot.”