2Bull Forex Blog

To trade to win in forex markets you need a sound and profitable forex trading strategy. Below you will find seven questions, if you cant answer them correctly, you will join the losing majority so lets look at them.

1. Do you understand and have confidence in the logic?

This may sound an odd question to ask but it’s a fact, that most traders don’t understand their forex trading strategy and will not have confidence in it when it hits a losing streak.

Why?

Because in most cases they are following a guru or mentor and have NOT developed the system themselves.

While developing a currency trading system is simple and anyone can do it, most traders fall for buying an e-book or trading system off the net for a few hundred dollars and expecting to win - GET REAL!

Most of the systems sold on the net are junk and if you think about it, the forex trader selling it wouldn’t have as they would be to busy making money to bother you with it!

The only way to do it is to learn a system yourself and be totally familiar with how and why it works. Not only will you avoid scams, from confidence comes discipline a vital component of currency trading success

2. Is it Objective or Subjective?

When you trade make sure your system comprises of objective rules and not patterns that require to much subjective judgement. For example Elliot wave theory and cycles mean you have to make subjective judgements - when you do this your emotions can get involved and that is a recipe for losses.

3. Does It Trade The Odds?

Do you try and predict if levels of support of resistance will hold and then hope they do?

For example, do you:

Buy just above support or a moving average or sell into a double top?

If you do then you will lose - as you are not trading the odds before issuing your trading signals. To trade the odds, you need to use confirming indicators, to give you clues to shifts in price momentum. If you predict you will lose, if you confirm your signals at critical levels you are trading the odds. and can win.

4. Is Your Trading System Simple?

By simple we mean a few simple rules (not 20 or 30) for executing a trading signal.

If your forex trading system includes a lot of indicators or rules, chances are it will lose, as it has more elements to break.

In currency trading your chances of success will increase dramatically if you keep your trading system simple.

5. Does it Work on ALL Markets?

If you constantly change the rules and parameters of forex trading strategy for different market conditions or different currencies it will fail.

Many traders back test and then tweak their systems to make them profitable. This is called “curve fitting” and means bending the system to fit the data - it doesn’t work.

We don’t have time in this article to go into all the dangers of curve fitting, so read our other articles, but if you want to avoid curve fitting your system should work with no tweaks or optimization.

6. Does it have specific Money Management System?

We don’t mean just placing a stop, that’s easy - but how to lock in profits with trailing stops on open positions and using profit targets.

Most forex traders simply think money management (after placing an initial stop) takes care of itself in a forex trading strategy - it doesn’t.

The difference between success and failure is thin and money management that maximizes gains can be the difference between you winning or losing.

7. Why Do You Believe You Will Win?

So why should your forex trading strategy win while 90% of forex traders lose?

If you cant answer this question quickly and with confidence, say goodbye to your equity and get back to your forex education!

In forex trading over 90% of traders lose ALL Their money. If you don’t want to join this group and enjoy currency trading success, you need to avoid them all.

Here are the 10 common mistakes forex traders make and how to avoid them:

1. Day Trading

The biggest error made by novice traders is to think that day trading works - it doesn’t.

Why?

Because all short term price movements are random.

It is impossible to calculate the odds of where prices will go in such short time frames and the result is a loss of the trader’s equity.

Ever seen a day trading record in real time? Neither have I and you wont because it doesn’t work.

2. Buying Systems From Vendors

Leads on from the above point.

There are plenty of Vendors on the net prepared to sell you their “secrets” for $100 odd dollars - don’t fall for them!

They normally come with hypothetical track records done in hindsight and anyone can make money knowing the closing prices.

The problem is you have to trade not knowing them!

Its obvious most currency trading systems sold are junk and the vendor makes money appealing to greed of the buyer NOT trading the system themselves.

3. Trading off News Stories

There is more news than ever and its all so convincing, the problem is its impossible to trade it.

Why?

Because the currency markets discount news instantly and move on future perception so trading news stories is futile.

4. Predicting the market

Another great myth in currency trading is that markets can be predicted with scientific accuracy. Well, if this was true there would be no market, as we would all know the price in advance!

King of the theories is Elliot wave, which claims to be objective and scientific, yet leaves the user to make subjective judgments!

5. Being to subjective

Many traders like to be subjective when executing forex trading signals with their currency trading systems, but this simply allows their emotions to get involved.

They really should use indicators that are objective and have specific rules in their forex trading strategy, but they like to shoot from the hip and lose.

6. Making a system to complicated

Many traders think that the more complicated they make their forex trading system the better; after all 10 indicators must be better than 3 or 4.

Wrong!

In forex trading, it’s a fact that simple systems work best, as they are more robust in the brutal world of trading.

7. Poor Money Management

Most traders have no money management strategy at all.

You need to execute your trading signals, then the hard part begins - preserving your equity and making it grow.

Initial stop placement and how you move them are critical to your success and most traders don’t have a clue about how to do this.

8. Chasing the tail

Many traders have perfectly good trading systems, but cant handle drawdowns, so they simply try a new system.

If of course they had stayed with the system they had in many cases they would have made money, but they lack patience.

9. Poor Discipline

Most traders have heard the word, but have no idea what it is and trade with their emotions involved and lose.

Discipline is based upon knowledge, understanding and confidence and as most traders fail to develop their own forex trading strategy properly (most try and buy success from a vendor) the result is failure.

10. Trading to much

Most traders simply lack patience and trade to much.

This of course goes for the losing day trading crowd, but also a lot of other traders - they try and force the market to give them profits, trade when they shouldn’t and lose.

Most people who trade forex shouldn’t, as they have no chance of winning from the start and will make one, or more of the above 10 mistakes.

If you think you can win at forex trading, ask yourself this simple question.

What is my edge that will enable me to enter the winning minority of traders?

If you don’t know what your edge is - you don’t have one, so get one or forget forex trading.

The good news is:

Everything about forex trading can be specifically learned for those traders willing to put in the time and effort to do so and the rewards are immense.

The world of the Internet provides investors with a whole other world of investment. Because of the Internet you can get involved in the stock market on your own terms, with less money and be in contact with your stocks all the time.

Online stock brokers play a large role in the investment life of people who want to get into investing but either don’t know where to start or don’t have a large capital to get them started. Online stockbrokers are very different from usual brokers. So they will help you with investing but will not normally manage your investments and money.

The investment world that we live in now it has become increasingly hard to know what the best path for your money is. There are no longer any sure bets. There is however an art to the science of investment.

The stock exchange has always been the middle ground that acts like a platform for the stock traders and the offering companies to buy and sell. Generally once a company is invested in, it will use the invested funds to grow the company and expand areas, which will help them, achieve long-term goals. So once a company is ready to float, it means that is ready to grow.

In the pre-Internet world the traditional stock market works a little like this. Investors use and are assisted by stock brokers who will help their clients buy and sell their stocks. The broker will help their clients build a portfolio and help manage it. This is still done, but because of the Internet you have options.

The Internet provides you with the option of having an online stockbroker. An online stockbroker will offer you help in reaching your financial goals. By keeping a breast f the financial condition your online broker will make informed decisions. Online stockbrokers will charge less in commissions but will generally give you a little less for it. But if you work with someone that you trust, it should work out to your benefit.

When choosing and using an online broker you should however take these points in to consideration.

1. It’s best to start with a full service broker and wean off then to an online broker.

2. Check your performance regularly so that you are familiar with your portfolio.

3. Always have a range of contact points for your broker.

4. Always choose a broker that has range of services and can offer you a range of options.

5. Go for a broker, which will allow you to start with a smaller minimum deposit. Perhaps go for a broker that will let you open an account without a minimum deposit. You will gage their dedication by this.

6. Go for a broker with low commission structures, but not always the lowest because you might not get a good service.

7. Do a quick background search on your broker; the Internet has made this very easy. Just do a search with their name, address and or phone number.

8. Never go with a broker that does not give you all of the fee information up front and straight away. If they hide anything, don’t give them your hard earned money!

Charts are important tools used in making a technical analysis of the stock market. Though the fluctuations are marked daily on the charts, for an untrained eye it could be a bit of time before it would be able to fully understand the implications of the variations in the charts from one day to another. Candlestick charts could be very confusing at the outset, mostly because the number of indicator shapes in use is about twenty in number. However, once the person is well-familiarized with the charts, he/she would be in a better position to predict the price movements precisely.

Patterns are something that a technical analyst needs to understand fully well. These go a long way in helping to predict market trends. The analyst will often encounter the Cup and Handle pattern, in which the prices would begin at a high, reach a low level and then begin to rise again, forming a pattern much like a cup. If the cup levels out for a while before rising, then that region is known as a handle on the pattern. Those investors who buy at the handle are buying at the time when the prices are predicted to break out higher. So they stand making very good profits.

One more interesting pattern is the Head and Shoulders. This pattern consists of three peaks – the first is a tiny bump-like peak, followed by a big peak and then another tiny peak. It looks like a head surrounded by two shoulders. This pattern is not a good pattern to invest in. It is indicative of a bearish pattern, which is likely to dip more after the second peak.

Apart from the patterns there are several indicators that an analyst must be aware of. The four most important kinds of indicators are the moving average indicator, relative strength index, money flow index and the Bollinger bands.

1. Moving Average Indicator – This is the most commonly used indicator which shows the average price of a stock over a period of time. It works like an average. Suppose the moving average indicator is for thirty days, then the closing prices of the thirty days must be added and then divided by thirty. Commonly used periods are twenty, thirty, fifty, hundred and two hundred days. More the number of days considered, more stable is the index. Representation of the moving average indicator is done with a line graph. When the price falls below the line, it tends to keep on falling; but if it rises above the graph, then it tends to keep on rising.

2. Relative Strength Index – This index compares the number of days the prices are up with the number of days the prices are down. The average of the number of up days is divided with the average of the number of down days. 1 is added to the number obtained, and then it is divided from 100, and then 100 is subtracted from it. The number so obtained is the relative strength index. The relative strength index is calculated from smaller time spans, such as for 9 or 15 days. Relative strength indices range from 0 to 100. If this index goes below 30, then it may be a good time to buy as the stocks could be overbought. Bullish or bearish nature of markets has a strong influence on whether this index would be of any use or not.

3. Money Flow Index – This index is calculation from the number of shares that are traded as well as the prices they are traded for. Again this is a number from 0 to 100, with 70 being the point above which the stock must be sold, and 30 being the point below which the stock must be bought.

4. Bollinger Bands – The very popular Bollinger bands are actually a set of three horizontal lines. Actually only the upper and lower lines are of relevance. If these lines are far apart, it means that the market is volatile and prices could change with rapidity. But if the bands are closer, then the market is stable. If the prices are moving closer to the lower band, then the stock is oversold and the prices will rise. The opposite case happens if the prices are moving closer to the upper band. Bollinger bands are not often used as independent indicators. They are used in conjunction with other indicators as a sort of confirmation.