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45 Ways to Avoid Losing Money Trading FOREX, by Jimmy Young
1) Knowledge Deficiency – Most new FOREX traders don’t take the time to learn what drives currency rates (primarily fundamentals). When news or a statement is due out they must close out their positions and sit out the best trading opportunities. They are taught to only trade after the market calms down. So essentially they miss the whole move and then trade the random noise that follows a fundamental price move. Just think for a moment about technically trading the aftermath of a price move; there is no potential.
2) Overtrading – Trading often with tight stops and tiny profit targets will only make the broker rich. The desire to “just” make a few hundred dollars a day by locking in tiny profits whenever possible is a losing strategy.
3) Over leveraged – Leverage is a two way street. The brokers want you to use high leverage because that means more spread income because your position size determines the amount of spread income; the bigger the position the more spread income the broker earns.
4) Relying on Others – Real traders play a lone hand; they make their own decisions and don’t rely on others to make their trading decisions for them; there is no halfway; either trade for yourself or have someone else trade for you.
5) Stop Losses – Putting tight stop losses with retail brokers is a recipe for disaster. When you put on a trade commit to a reasonable stop loss limit that allows your trade a fair chance to develop.
6) Demo Accounts – Broker demo accounts are a shill game of sorts; they’re not as time sensitive as real accounts and therefore give the impression that time sensitive trading systems, such as short-term moving average crossovers can be consistently profitably traded; once you start dealing with real money reality is quick to set in.
7) Trading During Off Hours – Bank FX traders, option traders, and hedge funds have a huge advantage during off hours; they can push the currencies around when no volume is going through and the end game is new traders get fleeced trying to trade signals. There is only one signal during off hours – stay out.
8) Trading a Currency, Not a Pair – Being right about a currency is half a trade; success or failure depends upon being right about the second currency that makes up the pair.
9) No Trading Plan – Make money is not a trading plan. A trading plan is a blueprint for trading success; it spells out what you see your edge as being; if you don’t have an edge, you don’t have a plan, and likely you’ll wind up a statistic (part of the 95% of new traders that lose and quit).
10) Trading Against Prevailing Trend – There is a huge difference between buying cheaply on the way down and buying cheaply. What was a low price quickly becomes a high price when you’re trading against the trend.
11) Exiting Trades Poorly – If you put on a trade and it’s not working make sure you exit properly; don’t compound the damage. If you’re in a winning trade don’t talk yourself out of the position because you’re bored or want to relieve stress; stress is a natural part of trading; get use to it.
12) Trading Too Short-term – If you’re profit target is less than 20 points don’t do the trade; the spread you pay to enter the trade makes the odds way against you when you go for these tiny profits.
13) Picking Tops and Bottoms – Looking for bargains works well at the supermarket but not trading foreign exchange; try to trade in the direction the price is going and you’re results will improve.
14) Being Too Smart – The most successful traders I know are high school graduates. They keep it simple and don’t look beyond the obvious; their results are excellent.
15) Not Trading Around News Time – Most of the big moves occur around news time. The volume is high and the moves are real; there is no better time to trade fundamentally or technically than when news is released; this is when the real money adjusts their positions and as a result the prices changes reflect serious currency flow (compared to quiet times when Bank traders rule the market with their customer order flow.
16) Ignore Technical Condition – Determining whether the market is over-extended long or over-extended short is a key determinant of near time price action. Spike moves often occur when the market is all one way.
17) Emotional Trading – When you don’t pre-plan you’re trades essentially it’s a thought and not an idea; thoughts are emotions and a very poor basis for doing trades. Do people generally say intelligent things when they are upset and emotional; I don’t think so.
18) Lack of Confidence – Confidence only comes from successful trading. If you lose money early in your trading career it’s very difficult to gain true confidence; the trick is don’t go off half-cocked; learn the business before you trade.
19) Lack of Courage to Take a Loss – There is nothing macho or gutsy about riding a loss, just stupidity and cowardice. It takes guts to accept your loss and wait for tomorrow to try again. Getting married to a bad position ruins lots of traders. The thing to remember is the market does crazy things often so don’t get married to any one trade; it’s just a trade. One good trade will not make you a trading success; rather it’s monthly and annual performance that defines a good trader.
20) Not Focusing on the Trade at Hand – There is no room for fantasizing in successful trading. Counting up and mentally spending profits you haven’t made yet is mental masturbation and does you no good. Same with worrying about a loss that hasn’t happened yet. Focus on your position and have a reasonable stop loss in place at the time you do the trade. Then be like an astronaut – sit back and enjoy the ride; no sense worrying because you have no real control; the market will do what it wants to do.
21) Interpreting FOREX News Incorrectly – Fact is the press only has a very superficial understanding of the news they are reporting and tend to focus on one element and miss the point. Learn to read the source documents and understand it for real.
22) Lucky or Good – Your account balance changes don’t tell you the whole story about your trading; fact is if your taking a lot of risk and making money you will eventually crash and burn. Look at the individual trade details; focus on your big loses and losing streaks. Ask yourself this; if I had a couple of consecutive losing streaks or a couple of consecutive big loses, how would my account balance look. Generally, traders making money without big daily loses have the best chance of sustaining positive performance. The others are accidents waiting to happen.
23) Too Many Charity Trades – When you make money on a well thought out trade don’t give back half on a whim; invest your profits from good trades on the next good trade.
24) Courage Under Fire – When a policeman breaks down the door to a drug dealers apartment he is scared but he does it anyway. When a fireman climbs onto the roof of a burning building he is scared but does it anyway; and gets the job done. Same with trading; it’s ok to be scared but you have to pull the trigger; no trigger – no trades – no profits – no trader.
25) Quality Trading Time – I suggest 3 hours a day of quality, focused trading time; that’s about all your brain allows. When your trading being 100% focused; half way is bullshit’ it doesn’t work. Don’t even think that time spent in front of the computer watching the rates has any correlation to profitability; it doesn’t. Spend less time but when your trading be 100% focused on trading.
26) Rationalizing – Killer. Absolute Killer. Put your trade on and let it run. If it hits your reasonable pre-determined stop your out. Think of yourself as a prizefighter; you just got knocked out. Moving your stop is like getting up after being crushed with a knockout blow; it’s pointless; things will only get worse. Don’t ignore the obvious; your wrong – get out. Come back the next day and try again. A small loss will not hurt you; a catastrophic loss will.
27) Mixing Apples and Oranges – Have you ever done this; you see the EURUSD trading higher so you buy GBPUSD because it “hasn’t moved yet”. That’s a mistake. Most of the time the reason the GBPUSD hasn’t moved yet is because its already overbought or some 4:30am UK news was bearish. Don’t mix apples and oranges; if EURUSD looks bid buy EURUSD.
28) Avoiding the Hard Trades – Bank FX traders have an axiom; the harder the trade is to do the better the trade. This I learned from experience; when I needed to buy EURUSD and it was hard to get them that’s when it’s necessary to pay up and get the business done. When it’s easy to get them then sit back and wait for better levels. So if your trying to get into a trade or more importantly get out of a trade don’t putz around for a few points; get your business done.
29) Too Much Detail – If your trading more than 2 indicators then you need to clean house. Having many indicators stifles trading and finds reasons not to trade. A setup and a trigger is all you need.
30) Giving Up Too Easy – Your first trade of the day may not be your best but certainly it’s no reason to quit. I have a preset daily trading limit and I use it; you can’t make money by making excuses; getting trades wrong is natural and should be expected.
31) Jumping the Gun – Don’t be penny wise and dollar foolish; wait for your trade signal to be clear; put on your trade and give it a decent size stop loss so that you don’t get knocked out by random noise. Do trades don’t’ buy lottery tickets (extremely tight stops).
32) Afraid to Take a Loss – trading is not personal; it’s business. Don’t think that a poor trade is a reflection on you. It could be your just ahead of your time or a commercial order hits the market and temporarily creates a small unexpected move. Again, place your stop beforehand and NEVER increase your pre-determined risk; if it’s going bad it will probably get worse; I think that’s Einstein “in motion stays in motion…”
33) Over-Relying on Risk Reward – There is zero advantage in risk reward; if you put a 20 point stop and a 60 point profit your chances are probably 3-1 that you will lose; actually with the spread its more like 4 to 1 (from entry point if it goes down 17 points you lose or up 63 you win; 17/63 is close to 4-1).
34) Trading for Wrong Reasons – Because the EURUSD is going up is not in itself a reason to buy. Buying EURUSD because its not moving so little risk is even worse; you’re paying the toll (spread) without even a hint that you will get a directional move. If your bored don’t trade; the reason your bored is there is no trade to do in the first place.
35) Rumors – Rumors are rumors almost 100% of the time; think about where in the motion you heard the rumor; if EURUSD is up 50 points in last 15 minutes and the rumor is dollar negative, well then you missed it. Whenever you trades determine where in the motion you are entering.
36) Trading Short-term Moving Average Crossovers – This is the money sucker of the century. When the shorter term moving average cross the longer term moving average it only means that the average price in the short run is equal to the average price in the longer run. For the life of me I cannot understand why this is bullish or bearish. Easy to set up on software, complete with lights, bells and whistles, and good for the seller getting thousands for the software but in terms of creating profit it’s a zero.
37) Stochastic – Another money sucker. Personally I think this indicator is used backwards; when it first signals an overdone condition that’s when I think the big spike in the “overdone” currency pair occurs. To be overbought means strong and oversold means weak. Try buying on the first sign of overbought and selling on the first sign of oversold; you’ll be with the trend and likely have identified a move with plenty of juice left. So if %k and %d are both crossing 80; buy! (Same on sell side; sell at 20)
38) Wrong Broker – A lot of FOREX brokers are horrible; get a good one. Read forums and chats in several different places to get an unbiased opinion.
39) Simulated Results – Watch out for “black box” systems; these are trading systems that don’t divulge how the trade signals are generated. Great majority of them are absolute garbage. They show you a track record of extraordinary results but think about it; if you could build a trading system with half a dozen filters using the benefit of hindsight, couldn’t you too come up with a great system. Of course going forward is an entirely different story. High-speed number crunching capabilities allows for building great hindsight trading systems; BEWARE.
40) Inconsistency – Every business (FOREX trading included) requires a business
plan (trading plan). Unless you have taken the time to write down a set of rules that you can and will follow, it’s likely your trading will remain unfocused and directionless. Make a plan, have rules, follow them set goals that are realistic and you will achieve them.
41) Master of None – Focus on one currency for technical trading; each currency has a unique way of trading and unless you get intimate with it you will never truly understand its underlying idiosyncrasies. Don’t spread yourself too thin – focus – master one currency at a time.
42) Thinking Long Term – Don’t do it. Stay in the moment. Especially if you’re a day trader. It doesn’t matter what happens next week or next month, if your trading with 30 to 50 point stops restrict your thought process to what’s happening right now. That is not to stay the long-term trend is not important; it is to say the long-term trend will not always help you when your trading a significantly shorter time frame.
43) Overconfidence – Trading is not easy; statistics show 95% failure rate. If your doing well don’t take your success for granted; always be on the lookout for ways to improve what you’re doing.
44) Getting Pumped Up – The trick is to maintain an even keel; when you are in a trade you want to think exactly as you would if you didn’t have a trade on. To do this requires a relaxed disposition; this is not a football game; don’t get psyched up; relax and try to enjoy it.
45) Staying in the Game – I don’t recommend demo trading because traders learn bad habits when trading with play money. I also don’t think “letting it all hang out” right away is wise either. Start off doing trades and taking risk that is relatively small but still makes a difference to you if you win or lose; about a quarter to a third of what you expect to reach as your trading matures is reasonable.
Retired proven professional Bank FOREX trader with over 20 years of hands-on FOREX trading experience.
Email: jimmy@eurusdtrader.com
Web: http://www.eurusdtrader.com
Essential Elements of a Successful Trader
by Jimmy Young
EURUSDTrader
Courage Under Stressful Conditions When the Outcome is Uncertain
All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.
You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.
However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you’re taking.
Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.
Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.
The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.
For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a ‘hold on until it comes back’ strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.
The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like “what if news comes out and you wind up with a loss”. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).
So your fear is just a baseless annoyance. Don’t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld “Live in the now man”. Worrying about what could be is irrational. Studying your chart and determining an objective exit point is reality based and rational.
Another common pitfall is closing a winning position because you are bored with it; its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he reenters the game he is a serious threat to gain more yards – this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains – so why close it?
If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you’re a natural gunslinger and reckless you will need to tone your act down a notch or two and we can help you make the necessary adjustments. If putting your money at risk makes you a nervous wreck its because you lack the knowledge base to be confident in your decision making.
Patience to Gain Knowledge through Study and Focus
Many new traders believe all you need to profitably trade foreign currencies are charts, technical indicators and a small bankroll. Most of them blow up (lose all their money) within a few weeks or months; some are initially successful and it takes as long as a year before they blow up. A tiny minority with good money management skills, patience, and a market niche go on to be successful traders. Armed with charts, technical indicators, and a small bankroll, the chance of succeeding is probably 500 to 1.
To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.
Jimmy Young
VIX Climbs, Signaling Trouble for Stocks
The stock market’s main fear gauge moved past a key level on Monday, indicating possible troubles ahead for the market.
And one options player with deep pockets is making a big bet that volatility will increase sharply, making this a tumultuous summer.
The Chicago Board Options Exchange Volatility Index, or VIX, moved past 30, a mark it hasn’t closed above since June 4. A VIX (Chicago: VIX) reading of better than 30 generally indicates high volatility that usually accompanies stock market drops.
Following suit, stocks lost more than 1 percent.
The joint moves in the VIX and stocks come just a few days after a big investor bet on the VIX caused tremors in the options market.
One trader on Thursday bought 20,000 July VIX calls at the 45 strike and sold 55 strike calls for an overall premium of 42.5 cents in a trade that cost about $850,000 to execute. The net impact is that the VIX would have to beat the 45.42 level by the July expiration for the investor to make money. The VIX hasn’t been past 40 since April 21.
“The last few weeks we’ve come under 30 and we’ve been under 30 as investors became more sanguine in their approach,” said Andrew Wilkinson, senior strategist at Interactive Brokers. “This was a standout trade that went against the grain.”
While there would be no direct correlation between such a huge trade and the actual VIX movement, the bet could be indicative of a shifting mood.
VIX options premiums have been generally drifting higher, with trading last week on July calls for a 35 in the index exceded open interest. Implied volatility on the index also has risen sharply, also suggesting higher moves in the index and tougher sledding for stocks.
Greece lifts Short Selling Ban
From 1 June, Greece will allow short selling on the Athens Stock Exchange. Traders must declare short positions and their broker must disclose and flag that the order is a short sale. Further, shorts will be subject to an uptick rule that requires the order to be entered at a price higher than the last trade. Further, short positions that exceed 0.10% of a company’s share float must be disclosed. Once this threshold is reached, traders are required to report any subsequent changes to regulators. The stock exchange will publish the short interest on a daily basis for each stock. This is definitely a step forward, and better than a ban, but it will be interesting to see how traders adapt to the situation.
Future Option Trading – A Brief History and Overview
Author: Casey Yew
One of the most exciting and little understood markets available to the investor is the Futures Option Market, or Commodity Trading. It is similar to the Stock Options Trading market in many ways, but there are also some major differences. Some of the terminology used in Futures Trading also has a different meaning than the same term when applied to Stock Option Trading, and caution must be used to avoid confusion.
In the United States, all of the trading of future contracts are recorded and monitored by the Commodity Futures Trading Commission (CFTC). This agency was created by Congress in 1974 and replaced the earlier Commodity Exchange Authority. The CFTC acts as a watchdog over the entire market, and has considerable power in enforcing its rules and standards.
The Future trading market is often called the Commodity Market, or commodity exchange. This is because the underlying asset is a commodity rather than a share of stock. The commodity can be almost anything from a barrel of olive oil to the value of an index. The most important difference between a Future option and a stock option is that the contract in a Future option gives you the right and the obligation to purchase or sell the underlying asset at a certain price on a specified date. It is obligation that is the key difference, as the stock option is a true option, and no obligation exists.
The trading of commodities has a long history. Some claim the market can trace its origins back to the Roman era. It was certainly active in Japan several centuries ago where the trade was in rice and silk. The market began in the United States in Chicago in the early part of the nineteenth century. Chicago grew and became a centre for transportation and for the trading of the agricultural products of the growing Midwest. The massive amounts of produce that flowed into Chicago coupled with the primitive methods of transportation and communication created virtual chaos. The supply and demand of various commodities fluctuated wildly, and as they did prices rose and fell so quickly that everyone involved were constantly at risk. The market developed to provide some measure of protection from these risks.
The basic concept behind the market was the idea of “forward” contracts. The forward contract was basically a promise to buy now, but pay and deliver later. It brought order to the chaotic market place because suppliers were given some security that their products would be purchased at an acceptable price.
From this beginning, the concept of forward trading developed in the modern futures market. It has been regulated and brought under control, but it remains a volatile and expanding entity. The definition of commodity continues to expand. No longer is it restricted to grain and cattle, but now includes just about every disposable item, as well as non-tangibles like interest rates, and financial instruments. Economist debate over where the definition of commodity will reach its end. Is it an infinite concept? Are such things as human life and free time considered commodities?
One thing is certain. The Future Options Market is incredibly complex, and very little that happens in the world does not impact the prices of the future. Weather conditions impact agricultural output. Political events on the other side of the World impact oil prices. The global economy intertwines more and more each day as transportation and communication continue to shrink the globe.
All of this may appear extremely daunting to the beginning investor, but with a little bit of work with the terminology and the procedures of the market, a profitable and exciting investment option awaits.
Article Source: http://www.articlesbase.com/finance-articles/future-option-trading-a-brief-history-and-overview-92192.html
About the Author:
Among the Many Investment Opportunities that Exist, Option Trading Stands as Both One of the Most Exciting and Risky as well as One that Offers Some of the Best Chances for a Substantial Return. Learn Options Trading Basics , Strategies and Pricing here at http://www.option-trading-fortune.com
Futures Trading – Definition, History and Types
Author: Praveen Ortec
Futures trading are the trading of futures contracts, which gives the holder the ability to buy underlying products for a predetermined price after a definite period of time. These contracts are created mostly for hedging the price uncertainty at the time of product delivery. Futures trading differ from spot trading, in which the trades are completed on the spot. The delivery time of the product is mostly 3 months or 6 months. Futures contracts can be grouped into two broad categories as commodity futures and financial futures.
The trading futures contracts begun in 17th or 18th century in Japan and Holland for agricultural products like rice and wheat. But the first organized futures trading started in Chicago, United states in 1840. In 1848, the first centralized futures trading market came in to being in Chicago called Board of Trade of the City of Chicago, which allowed both spot trading and futures contract trading. The Board of Trade of the City of Chicago later modified its name as Chicago Mercantile Exchange (CME).
In 19th century the products available for futures trading are common agricultural commodities like wheat, rice, oats etc; also some live stocks and meats. Most of these products are traded across US, from western agricultural lands to eastern populated lands. Later more products such as gold, silver, crude oil, natural gas, heating gas, etc were also become available for trading. With the development of the market the products increased to stock futures and stock index futures. In 1971, with the ending of currency gold standards, CME introduced financial futures for the first time, which soon became the most traded futures item. In 1987 electronic trading of futures started and futures contracts become available to everyone around the world.
All futures contracts are guaranteed by clearing houses and have unalterable contract specifications including delivery time and price of the underlying product. Although both names, futures contracts and forward contracts, are used alternatively, they differ in the trading style. Forward contracts are traded OTC (over the counter) though broker-dealer interactions, which involve price bargaining. But futures contracts are traded by open outcry of screen in public domain or simply through centralized futures markets. Remember unlike options, in futures trading it is mandatory to own/deliver the underlying product at the end of the contract period.
As discussed earlier, there are a variety of products available for futures trading, which are named after the underlying product they have. The most common type of futures is the commodity futures for agricultural, metal, energy, meat and live stock commodities. The financial futures or money futures are the futures contracts which have bonds, treasury notes, and other interest-based assets as underlying product. Stock futures have individual stocks are underlying product, where as stock index futures are meant for hedging stock market fluctuations as a whole. Like wise, currency futures are for individual currencies and index futures are for one group/whole market currencies. Although not a future contract, futures options are also a familiar product which gives the holder the option to buy a contract for a specified price at a specific time.
Article Source: http://www.articlesbase.com/investing-articles/futures-trading-definition-history-and-types-125190.html
About the Author:
Praveen Ortec works for NobleTrading.com, an online day trading broker offering direct access online futures trading on 3 different futures trading systems .
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