Introduction to Forex - Profit and Loss

Profit and Loss (P&L) for every position is calculated in real-time on most trading platforms. This enables traders to track their P&L tick by tick as the market fluctuates.
Approximate USD values for a one (1) "pip" move per contract in our traded currency pairs are as follows, per 100,000 units of the base currency:

EURUSD
1 pip = 0.0001
1 pip move per 100k (lot) = EUR 100'000 x .0001 = USD 10.00
USDJPY
1 pip = 0.01
1 pip move per 100k (lot) = USD 100'000 x .01 = JPY 1'000 /spot = approx USD 9.7
USDCHF
1 pip = 0.0001
1 pip move per 100k (lot ) = USD 100'000 x .0001 = CHF 10.00 /spot = approx USD 8.5
GBPUSD
1 pip = 0.0001
1 pip move per 100k (lot ) = GBP 100'000 x .0001 = USD 10.00

EURJPY
1 pip = 0.01
1 pip move per 100k (lot ) = EUR 100'000 x .01 = JPY 1'000 /spot = approx USD 9.7
EURCHF
1 pip = 0.0001
1 pip move per 100k (lot ) = EUR 100'000 x .0001 = CHF 10.00 /spot = approx USD 8.5
EURGBP
1 pip = 0.0001
1 pip move per 100k (lot ) = EUR 100'000 x .0001 = GBP 10.00 /spot = approx USD 19.00
USDCAD
1 pip = 0.0001
1 pip move per 100k (lot ) = USD 100'000 x .0001= CAD 10.00 /spot = approx USD 8.00
AUDUSD
1 pip = 0.0001
1 pip move per 100k (lot ) = AUD 100'000 x .0001 = USD 10.00
On a typical day, liquid currency pairs like EUR/USD and USD/JPY can fluctuate a full point (.0100, 100 pips). On a EUR 1'000'000 position a full point on EUR/USD equates to 10'000 USD.

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Forex Trader Tips

1. Forex Money Management

There are many definitions of Money Management, from the use of a stop loss to how many lots you trade on each trade. My definition of Money Management is safety of funds. The most important money in trading is the money you already have. Yes, it is important and required to risk some money to make profits, yet a true Money Management plan maximizes profits with as little risk as possible.

Once you have established a trading plan, practice your plan through some form of simulator or demo account. If you need a good trading plan, choose one of fifteen forex trading systems with Smart4xTrader. Log each trade and note all your orders (i.e. entry, stop loss, targets, etc.). After you have logged at least 30 trades, go back over these trades and look for the highest risk trades - those trades with the largest stop loss yet with the smallest potential return (Risk Reward Ratio). Establish rules to minimize this drawdown potential and test them over and new set of 30 trades. If these better your results then implement them into your trading plan. It is wise to evaluate your money management techniques every 100 trades to perfect your trading.

NOTE: Using Money Management techniques may actually lower your total return, but remember that Money Management is safety of funds first, profits second.

2. Forex Long-Term Hold Strategy

Is it possible to hold your cash in a bank and make a 12 percent plus annual rate of return with zero risk? It is if you know the Forex market. As mentioned earlier, the goal in cash investing is not obtaining the most money, but retaining the most valuable money. So how is it done? Place your cash reserves in the currency that is appreciating over your countries currency. You may need to find a worldwide bank, however, many international banks will allow you to save your cash in the currency of your choice. If you live in the US and you wish to save your cash in Euro's when you deposit your funds, make a request to the bank that the US Dollars be exchanged over to Euro's. When you withdraw your funds you will exchange back toUS Dollars for a profit if the Euro appreciated over the US Dollar. There are also many forex brokers that will allow you to do the same thing. AC Markets is a good example. Of course you need to have a system on when to exchange and when to not exchange your cash into the other currencies. Smart4xTrader teaches this Forex strategy in their Forex Training.

To give you an example of the potential of a Long-term hold, in the Premier System provided by Smart4xTrader we were given a signal for a premier time to move over to Euro from US Dollars the week of April 15, 2006. By holding that position until May 2007, if we were going to withdraw our funds to US Dollars, we would now have 7.17 percent more US Dollars then we started with. Plus, we would also have any interest that we would have made in the savings account. If we look to the New Zealand Dollar and its run against the US Dollar our system gave a premier signal to be long the New Zealand Dollar the week of October 7, 2006. Today you would be up 13.23 percent over the US Dollar in less than 8 months. (Premier Trading Strategy offered by Smart4xTrader)
Add a little leverage and diversification in the mix and now you could have some serious profits over the long term. It pays to understand the foreign exchange market!

3. Forex Fundamental Trading

Most of the time we talk about Technical trading strategies and systems. The On Target Trading System and other trading systems used and taught by Smart4xTrader, use technical analysis exclusively in making trading decisions. What about Fundamental Analysis? Does it have the potential of creating consistent profits over time? Fundamental Analysis is the study of the market strengths and weaknesses. Due to the global environment of the Forex, Fundamental Analysis is more focused on news catalysis's than the strengths and weaknesses of the currencies themselves. If you used fundamental analysis to trade stocks you would spend a great deal of time focused on the make-up of the company, its CEO, earnings per share, and future product line. The same isn't as true with Forex, you spend more time focused on the changing of interest rates than anything else. It is impossible to teach Fundamental Analysis in a single paragraph, but if you desire to explore further this trading technical my suggestion is to start by taking a look at the current news events of each day and spend some time seeing how the market reacts to the price fluctuations. Be careful as price can move on a dime with one single word change in the news. One of the best free sources on the web is www.forexfactory.com. Even though I don't trade on fundamental analysis I still from time to time like to see what the other guru's are talking about. This is a great resource to hear the buzz of the market. Check them out and happy trading.

4. Look Both Ways Before you Cross the Street – Forex Street
"Look both ways before you cross the street," is a phrase that we all heard as a child and now is a phrase that I say constantly to my own children. Why do we say this? Because we want our children to look for the potential dangers in front of them as well as those behind them. The same principle can be said with the forex market, but instead of looking for cars we are looking for support and resistance lines. Levels of support and resistance are what gives the markets shape and form. It is what keeps price from just drifting to the ends of the earth. Now to understand why these levels create shape to the markets you need to understand how they came about.

First, the why. Support and resistance levels are created by at least one of two major things: volume and/or the mental phenomenon. Volume is the major cause of these levels and creates the strongest level of the two. When price is either bought or sold in a high volume amount at a certain price level, that level now becomes either support or resistance (support if price was bought up or resistance if price was sold down). Since a large body of trades entered the market at that price, lets say 1.2345, if price returns to that area, price is usually held by those initial traders through additional position taking. Traders add additional positions to hold the market from going against them. In addition, other traders that missed out on the opportunity to get in from the beginning, now jump in and follow the crowd. Hence, price is maintained beyond the initial entry level. The greater the volume at a given price, the stronger the level will be. Initial volume levels are strong, but they do tend to weaken overtime as traders close out positions for profits. These high volume levels are usually generate through news catalysts and that is why we see a lot of support and resistance lines initiated at 5:30 AM, 8:30 AM, and 9:30 PM EST as these are the times when most major news releases come out worldwide.
Our other explanation for levels of support and resistance is the mental phenomenon. We are taught from an early age to recognize that the world is made of numbers from price tags to how much we weigh, everything is associated with a number. Just like in sales, where a number ending in .99 makes the product seem less expensive then the even number .00, even though it is only one cent lower, the same goes for the forex. The mental numbers in the forex market are those even-whole numbers like: 10, 50, and 100. Price is going to find some form of support or resistance at these number levels as traders tend to respect price as these numbers are approached. Of course the larger the even number the better (Ex. 1.3000 or 2.0000). Whether there was volume at these levels or not you will find that price tends to hold for a time at these levels.

6. How to Make Money with Support and Resistance – Profit Targets

The first is Profit Targets. The majority of traders trade on emotion and close their trades when, 1- They have made enough money. 2- The problem with most traders is they have never made enough money. Just like Las Vegas, they stay in the game too long and give back all their profits to the house. Using support and resistance lines as levels to take your money off the table is a consistently winning strategy. What I like to do is to look for a close level of support/resistance for my Target 1 and then look at a further away support/resistance for Target 2. Once I hit Target 1, I take half of the lots off the table realizing profits, and then I allow the other half to ride toward Target 2. To conserve capital and eliminate the risk of loss, I will bring my stop loss up to breakeven or even set-up a trailing stop. Remember when you are in Buy trade you are looking for the next level of resistance to place your targets and if you are in a Sell trade then you are looking for the next level of support. Learn Forex Trading Systems at our site.
The second way to make money with these Forex support and Resistance levels is through money management. This actually comprises two aspects: 1) stop loss positioning and 2) Lot Sizing. A smart Forex stop loss is one placed below/above a key level of support/resistance. If you are in a Buy trade, place your stop loss 5 - 10 pips below the next level of support that is below your entry price. If you are in a Sell trade, you are going to place your stop loss 5 - 10 pips above the next resistance line. By doing this, you actually hire other world traders to protect your position. If price approaches your stop, other larger traders will step in to maintain price as explained in our last week’s article. Lot Sizing is another form of management that can be enhanced with these support/resistance levels. It all has to do with risk. If your profit targets compared to your stop loss are not large enough then your risk vs. reward is not exactly in your favor. Instead of trading and missing the trade set-up, minimize your lots to reduce risk. Vice versa, if the risk vs. reward is in your favor or Target 1 sits at a place that has a high probability of being reached, then you can take on more risk and increase your lot sizing and profits.
Make sure that you look both ways before you enter a trade in the Forex. Look behind you for potential risks that may keep price from going where you think it will go and also look for shelter for a solid stop loss. Look ahead of you to establish profit targets where price will most likely go. Support and Resistance Lines are the railings of the markets. Lean on them, trust them, and use them to better your trading.

7. A Losing Month in the Forex
After a losing month in the Forex it is wise to step back and analyze your trading. Understand that to participate in the Forex market long term you are going to have losing months. The goal is to not let the losing month detour you from trading your system and plan into the future. The Fear and Greed Factor will destroy your trading if you let it. Yes, you lost, but if you used proper money management you should still be in the game. I have traders all the time tell me that they are "sitting out for awhile." This I highly suggest against! Why? Well, does Tiger Woods sit out a few golf Tournaments when he doesn't finish in the top five in one tournament? Absolutely not! He is back on the green working out the kinks in his system of golf and so must you as a Forex trader - get back in the game and work out your kinks of trading. Now, don't take out your frustrations on the market, but rather resort to our learning philosophy, "Learn, Simulate, Trade, Profit." Go back, analyze your strategy and trading rules, review them in your mind. Simulate a few months of trading data, including the losing month to see if there was anything that you could have done better - learn from it. Then get back in the game to Trade and Profit. Endurance is more important than returns. If you have a good trading system, like the On Target and Premier Trading Systems, then you simply need to trade your plan and get back in the game. If you do, you will look back and that losing month will be dwarfed by consistent trading profits.

8. Forex Diversification
Diversification is the key to any successful portfolio over the long term. The investor's greed is shown when he/she only wants to invest in the highest yielding investment without analyzing why one is higher and why one is lower. By diversifying in two great forex trading strategies that each have different goals and objectives, you reduce the risk of loss during unpredictable markets. When the market is good, all accounts are making money. The key to diversification is to maintain capital growth even during bumpy markets. Don't put all your eggs in one basket. Diversify between currency pairs and also trading strategies for long-term capital wealth.

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All Trading in Currencies is Done in the Foreign Exchange (FOREX) Market

All trading in currencies is done in the foreign exchange (FOREX) market. However, it is an over-the-market in that there is no physical location for the FOREX market. Trades of currencies between foreign exchange dealers are done via telephone or computer link.

There are two parts to the FOREX market:
1) Spot Market
2) Forward Market

The major participants in the market are: large exporters/importers, central banks, foreign currency brokers and the commercial banks. Almost all trades in foreign exchange go through foreign exchange dealers employed by the large commercial banks. Foreign exchange dealers constantly buy and sell large amounts of currency throughout the day and are always ready to buy or sell more (although at a price they set). This means that the FOREX market is very liquid, you will always be able to find someone to buy your currency from you or sell you the currency you need (although maybe not at a price you like). Anyone wanting to trade currencies will do so by buying or selling the currency from one of these dealers.
Foreign exchange brokers are intermediaries who will carry out orders to buy or sell currency. Smaller firms and individuals generally do not have access to trading directly with the currency dealers employed by the banks because they deal with large sums of money. Therefore, if a small firm wishes to engage in currency transactions, it will probably have to be done through a currency broker. In aggregating the orders of many clients, a currency broker has the clout necessary to deal directly with the currency dealers. Currency brokers also possess the expertise and knowledge of the market necessary to trade directly in currencies. Of course, brokers charge clients a commission to perform this service for them. It should be noted that there is really a fine line between brokers and traders, as almost all major banks have both. They will have a trading floor where then actual dealers employed by the bank operate and trades in the FOREX market are carried out, and there will be a currency broker service offered on the retail side.

As one might guess by this point, the commercial banks are the most important players in the FOREX market. Approximately 85% of trades in the FOREX market are done between banks (i.e. FOREX dealers trading with each other).
Spot Market

The spot market is the market for the immediate exchange of currency. It is here that the current exchange rates are set (the spot rate). When someone sells a currency to someone else (in exchange for another currency), they are required to deliver that currency two working days later. Actual delivery of a currency is done through a transfer of bank accounts.
Example: A London bank sells DM to a New York bank for $US. Two working days later, the London bank transfers ownership of a DM deposit (held in a German bank) to the New York bank and gets ownership of a $US deposit in the U.S.

These types of transactions are often carried out through SWIFT (Society for Worldwide Interbank Telecommunications) which is a communications and computer system designed to keep track of and execute these types of trades.

The people that actually set the exchange rates are the banks’ dealers. Dealers set prices at which they are willing to buy and sell each currency (individual dealers will specialize in certain currencies). The dealers guarantee that they are willing to buy or sell the currency at the prices they set. Of course these prices are constantly changing and are only guaranteed up to a maximum trade size. The guaranteed trade size is the depth of the quote. For instance, a dealer may quote a price for £’s in terms of $US, but only guarantee the price on trades up to a value of $5 million US (which is a typical quoted depth). The price for trade of a larger size will have to be negotiated.
The existence of traders quoting prices at all times is an important feature of the FOREX market because of the liquidity it provides. There is virtually no chance that you will not be able to find someone to buy from or sell to.

FOREX dealers make much of their profit on the Bid-Ask Spread. A dealer will quote two prices for a currency:
Bid Price - the price at which the dealer is willing to buy the currency
Ask Price - the price at which the dealer is willing to sell the currency

Ask Price > Bid Price

The difference between the two prices is the Bid-Ask Spread.

Each dealer sets his or her own Bid-Ask prices and attempts to do two things:
1) Match the number of buyers and sellers he/she has at those prices.
2) Keep the volume of trades he/she is making high.


Example: The quoted price for Australian dollars as of September 29,1997 was 1.3878/88 $Aus/$US.
1.3878 $Aus/$US is the bid price.
1.3888 $Aus/$US is the ask price.
If the dealer buys $500,000 Aus. and sells $500,000 Aus. without any change in the exchange rate, what is his profit?
Because of the way the rates are quoted (units of $Aus per $US), they are really the bid and ask prices for the $US. Therefore, you must convert these to prices for $Aus.

Bid for $Aus = 1/Ask for $US

That is, take the inverse to convert $Aus/$US into $US/$Aus and note that the price the dealer will sell $US at is the same as the price at which he will buy $Aus.

Therefore;
Ask for $Aus = 1/1.3878 = 0.7206 $US/$Aus

Bid for $Aus = 1/1.3888 = 0.7200 $US/$Aus

The dealers profit is:
($500,000 Aus.)([0.7206-0.7200]$US/$Aus)
= $300 US


Dealers try to set their bid and ask prices to make the number of buyers coming to them equal to the number of sellers. If the bid price is too high, then people will want to sell to the dealer. The dealer will begin to develop an inventory of the currency that he cannot sell. This means that the dealer becomes exposed to exchange rate risk. If the currency depreciates before the inventory can be sold, the dealer will suffer a loss. Conversely, if the dealer sets the ask price too low, too many people will want to buy at that price. The trader develops a short position in the currency (he needs to deliver currency that he does not have yet). If the currency appreciates, the dealer suffers a loss. (Note: having the currency is a long position, owing the currency is a short position.)
Generally, dealers want to avoid exchange rate risk and so adjust the bid-ask prices to match the number of buyers and sellers that they have coming to them.

The bid-ask spread is set by competition among dealers. Dealers earn profits on each unit of currency bought and sold through them. If their spread is larger than other dealers, then customers will go to those other dealers. Thus, the spread tends to be similar for all dealers.

Occasionally, dealers will speculate on exchange rates by allowing themselves to build up short or long positions. However, these positions are only taken for a short time.

In the end then, it is the expectations of currency dealers that determine the day-to-day changes in exchange rates. Of course, the rates that dealers set are in response to the supply and demand for that currency, and that, in turn, is determined by the various factors we have discussed.

Currency Arbitrage

Currencies are traded in many centres around the world, by many different currency dealers. Arbitrage will tend to make these quotes consistent with one another. An arbitrage opportunity occurs if you are able to make large profits without risk.

Example:
You have $1,000,000 US to invest and observe the following quotes:
London: 104.58/68 ¥/$US
New York: 1.5173/83 $US/£
Hong Kong: 158.5158/68 ¥/£

You phone London and buy $1,000,000 US worth of ¥.
Gives you ($1,000,000 US)(104.58 ¥/$US) = ¥104,580,000
Phone Hong Kong and sell the ¥ for £’s.

Gives you (¥104,580,000)(1/158.5168) = £659,740.80

Phone New York and sell £ for $US.
Gives you (£659,740.80)(1.5173 $US/£) = $1,001,024.71 US

You have just earned an instant profit of $1024.71 US with no risk. This is an arbitrage opportunity. It is sometimes referred to as triangular arbitrage because it involves three currencies.
Triangular arbitrage takes advantage of inconsistencies in cross-rates (two non-US currencies quoted against each other, e.g. ¥/£.). Generally, arbitrage opportunities like this should not exist, or at least not exist for longer than a couple of minutes. Everyone involved in the FOREX market will observe this opportunity and try to take advantage of it. Millions (or billions) of dollars will be invested and this will drive up ¥ in London, drive down ¥ in Hong Kong and drive down £ in New York until the arbitrage opportunity disappears. Thus, market forces will guarantee that rates across different markets and different currencies are consistent.

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FX Market

“Forex” is a combination of the words “foreign exchange”. The Forex market deals in the buying and selling of currency and it is the largest financial market in the world. Currency is always traded in pairs. The price of the currency bought as compared to the price of the currency sold is called the exchange rate. The Forex market is often referred to as the “FX” market.

It has a major difference that sets it apart from other markets in that it has no physical location and no central exchange. It operates through an electronic network of banks, corporations and individuals who engage in this type of trading. The lack of a physical exchange makes the Forex a true 24-hour market that extends from one time zone to another without any interruption in trading.

Forex trading begins each day in Sydney, followed by Tokyo, London, and New York. Unlike other financial markets, Forex investors can respond to currency fluctuations caused by economic, social and political events in real time.

The best trading opportunities are usually considered to be the currencies that are the most commonly traded. Their rapid movement makes them the most liquid. Over 85% of all daily transactions involve the buying and selling of these currencies that are sometimes referred to as the “Majors”. They include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

The Forex market is considered an Over The Counter (OTC) market because transactions are conducted between two entities either over the telephone or through an electronic network.

There are some specific reasons why entities trade in the Forex market. The most common is to earn short-term profits from fluctuations in exchange rates. Traders also use the market to acquire the foreign currency necessary to buy goods and services from other countries.

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Evaluating the Forex Market

Learning to trade the forex market can be a valuable lifetime financial skill. The road to financial freedom requires a toll be paid in the form of perseverance and dedication. The journey starts with a single step and that step should be in the direction of developing a strong foundation in forex market analysis. In this article we are going to go over some forex market evaluation strategies designed to manage profit and losses in your currency trading account.

For anyone starting out trading the forex market, managing your trading can be a daunting task. Everything else seems to take priority over proven evaluation techniques. Learning the currency pairs and the myriad of technical indicators can at first be all encompassing, but building a solid market evaluation approach will allow you to maintain the big picture necessary for successful forex trading.

It all begins with a trading plan. Your forex trading plan should be your hard and fast guide to trade execution. Your trading plan should reflect your trading philosophy and style. Your plan should also contain key forex market evaluation strategies. Below are some currency market evaluation rules that can be embedded into your forex trading plan.

1. Price Action

In the end it is all about the price. Take a look at the current price behavior. Determine if the market is oversold or overbought. Are there any signals indicating a reversal, continuation or retracement? Where are the areas of support and resistance?

2. Market Condition

Access the overall market conditions. Look at both long and short term views. Access if the market is range bound or trending. Look deep into the market using multiple time frames in your technical analysis to determine if the currency pairs are trending short term in a long term range bound market or vice versa.

Stay current with the news and geo-political events. Technical analysis is the direction and the news can be the catalyst. Get comfortable with the principals of that Italian mathematician named Fibonacci.

3. Price Target

Determine what your price target is for the respective ranges and time frames. Patiently time your trade executions. You will be rewarded. Use your price action evaluation and market conditions to determine your price target.

Ask yourself if it makes sense and look for reasons NOT to enter a trade. When you cannot find those reasons then it is onto trade execution to determine reward-risk ratios and stop losses!

4. Stop Loss

Determine the criteria for stopping the trade on both profit and loss side. Decide upon both technical and fundamental stops. No one is correct 100% of the time, in fact when we trade leveraged instruments like currencies we can be profitable with less than a 50-50 win-loss ratio when we have excellent money management skills.

If you trade without a stop-loss then your forex experience will be a short-term activity!

Anyone can enter a trade, but it is the truly skilled forex trader that knows when to exit the trade. On the profit side, as well as the loss side!

5. Risk Management

Determine how much capital you are going to risk in a given trade. This is critical. You have performed all your evaluation and your exact risk should be a known quantity.

You should also have a minimum reward to risk ratio established in order to limit your losing trades while giving the best odds for the trade to be profitable. This risk to reward ration should be determined by your trading style and time frames used.

Finally, talk the trade through with your trading group or out loud if you are alone. Trust me; you will not be the first forex trader to talk to yourself. Being able to talk through a trade will reinforced the positive aspects of the trade and confirms that your trade will be executed in accordance with your trading plan.

Then it is time to celebrate, because even if the trade does not go your way you had solid execution. You had a losing trade and not a bad trade. That is the difference between successful and non-successful traders. The law of averages will eventually reward you.

If forex is your path to financial freedom, then it should be your business as well. Developing a solid business (trading) plan and market evaluation approach will be your foundation for success in the forex market.

Article Source: http://EzineArticles.com/?expert=Todd_Judkins

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Forex Education Tips - 5 Steps to Successful Forex Trading

Close to 95% of all Forex traders will lose money. We're not just talking about novices, either. Whether you trade Forex for a living, as a hobby or just for fun, odds are against your success. That's a simply astonishing fact. However, the remaining 5% of Forex traders somehow manage to break even and there are those lucky few that actually make money in the currency market – consistently!

Like the TV show says … “How’d they do that, anyway?”

That's the million dollar questions, isn’t it? Countless books, seminars and expos have been hosted to answer this very question. That sad fact is that thousands of books have been written and countless seminars and interviews have been conducted in an attempt to answer the magic questions. The reality of the situation is that there is no magic formula; no one single Holy Grail of Forex trading.

So what do the successful traders do that the rest of us have simple not comprehended. They have mastered a process of winning where they combine and customize several factor to produce consistent results. They have mastered the Process of Trading.

The Process of Trading is:

Strategy > Money Management > Self-Mastery

Here are some simple Forex Education tips to help you master the process of forex trading:

Success Tip #1 – You’ve Got To Have a Plan

You must have a written business plan that will detail all aspects of your trading. When are you going to trade, how much to risk, strategies for entries and exits are just o name a few. To become a consistent (profitable) Forex trader you have to plan your trade sand trade your plan.

Simplicity rules! Don’t make this plan too complicated. One sheet of paper for you mission statement and another for your trading plan should suffice. Anything more is probably too complicated.

Success Tip #2 – Focus on Your Personal Psychology

Knowing yourself will allow you to master the discipline necessary to execute high quality trades with solid money management techniques. Lack of discipline is fatal in Forex trading. Go on a personal journey to identify you attitudes towards risk and money. Get intimate with your strengths and weaknesses as a trader and build in to your trading plan strategies to minimize those weaknesses and maximize your strengths.

Different personalities lend to different trading styles. Get familiar with all the different styles and over time you will begin to gravitate towards one particular style. Don’t fight the urge like I did. I insisted I was a day trader, but had only limited results. I found my winning percentages were much higher when I entered swing trades. Guess what’s my bread and butter strategy now!

Success Tip #3 – Be Realistic About Your Expectations

This is a hard one, I know! I am on the internet every day and the amount of advertising is staggering. Brokers are offering free education (fox in the hen house if you ask me), forums of all different trading styles and points of view. Gurus pushing their system as “the one” that will make you the big bucks. How do you get through all that noise?

Let me tell you loud and clear right now – everyone is right and everyone is wrong. You have to make a personal commitment to become a successful trader, find a trading style that works for you and expect a slow and steady approach to wealth building through Forex.

What works for me may not work for you. Expect to go through an exploratory period where you are learning and at the same time exploring yourself as a trader. Keep an open mind and don’t pay attention to all the noise out there.

Success Tip #4 – Exercise Patience

Rome was not built in a day and neither will your trading account. In fact, I tell all of my students that while they are studying to become successful Forex traders they should not look solely at their account balance as an indication of success or failure.

By tracking and increasing your percentage of high quality trades you execute is a far better barometer of your progress than your account balance. Cause and effect rule here. Over time when you increase your probabilities through the execution of high quality trades your account balance will respond accordingly.

Keep the focus on the process and with time your results will blow your mind.

Success Tip #5 - Money Management Is Top Priority

I would rather have a shaky strategy and excellent money management techniques than the other way around. This topic warrants its own blog post to do it justice. Limited your exposure (read “risk”) allows for you to stay in the game and allow the laws of probability to work.

Let’s take a casino for example. They need gamblers to frequent their slot machines to make money. Why? They have a game that has a greater than 50% chance of making money for the house. The more people that play the slots, the greater the casino’s profits.

The casino controls risk by payout tables (always favoring the house!) and increases their probabilities by keeping gamblers at the slot machines (read “free drinks”). As a trader you must limit your risk by committing only 1% - 3% of available capital to a single trade. When you execute enough trades with a high probability strategy you too can clean up like the casinos – but only by staying in the game long term.

In conclusion, Forex trading is not easy. It’s hard work and will test the limits of your patience and perseverance. If anyone tells you otherwise .., buyers beware! It can be a very rewarding and profitable venture if done correctly. In the end it is a profession that requires a learning curve and practical experience, no different than an airline pilot or engineer. Understanding how to approach and learn this game will allow you to reap all the benefits advertised. It is your Forex Education that you will master the Process of Forex Trading.

Article Source: http://EzineArticles.com/?expert=Todd_Judkins

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Do you have what it takes to become a successful Forex Trader?

Forex trading, or any trading for that matter, is an occupation that requires experience and the accumulation of proficiency not unlike any other highly skilled profession. Whether you are a leading executive at a major publically traded company, a professional golfer or trading from your kitchen table, there are 5 key ingredients that one must possess in order to become successful.

1. You must be Passionate about what you do.

As Forex traders we all face one unique set of circumstances that does not exist in any other profession. We get rewarded for when we succeed and equally punished when we don’t! Could you image a corporate worker one quarter receiving a significant accomplishment bonus and the next quarter actually getting money taken from their paycheck for missing performance targets? Not on your life!

We do as Forex traders and that is why passion for what you do will carry you through the tough times that are part of your trading business. Asked yourself why you trade currencies and would you still do it if Forex were not potentially lucrative? Your answers will be quite revealing. You’ve got to feel your passion for trading!

2. You have to Apply Yourself and work hard at it.

I talk to so many people that enter into Forex trading with the aspiration of getting rich quick. Without putting the time and energy into really getting good at trading I see them jump from strategy to strategy looking for the goose that will lay the golden egg and eventually quitting while blaming everything else, except the true cause.

I got news for you – you are the goose and your Forex education is the golden egg. The magic has always resided with the magician and not some strategy. Work hard at trading and the rewards will eventually come your way. Remember what Tiger Woods said, “Funny, the harder I work the luckier I get.” Apply yourself as a trader and it will be no accident when your account begins to blossom.

3. You must Focus to really get good at what you do.

Now here is the hurdle most Forex traders struggle to get over. You have the passion and you are applying yourself to your trade, now focus and really get good at just at what you are doing. Be the expert to the experts at just that one thing. Become the master of a strategy or risk management methodologies. Really focus on getting good at it.

Stop jumping around or getting pulled from the last “latest and greatest” into the next “latest and greatest” and focus on one aspect of Forex trading and know it inside out. Know it strengths and weakness. Set your sights on becoming expert on just one aspect of trading and watch it spill over in all other aspects for your currency trading. This is the time to fail forward fast, use every setback as a learning opportunity that will propel you 3-steps ahead!

4. You must Push Yourself beyond the point everyone else might have quite.

In Forex Trading this is simple. Assume there is someone on the other side of your trade that is pushing themselves and sharpening their edge. To be successful you must you must do the same thing. Now is the time to examine your mental edge. Do you know the single most critical factor in any currency trade? It is you, the trader! Sharpening you mental edge is the most difficult aspect of trading, but also the most rewarding.

Start with your Forex education and gain the self-awareness necessary to maximize your strengths and suppress your weaknesses. Any expert will tell you that trading is 80% mental. It’s time to sharpen your trading to the razor’s edge and you do this through Forex education. A constant and never ending process that will become the cornerstone of your Forex experience.

5. You must, without wavering, be Determined and Persist to your objective.

You will fail. I can state that emphatically. However, you will not be defeated unless you allow your failures to control your trading. It is the old adage; failure is not falling of your horse, failure is refusing to get back on. Your success depends on your ability to dismiss the criticism, rejection, self-doubt and pressures associated with Forex trading.

Defining what is a winning trade, losing trade and bad trade will go a long way into developing you as a successful trader. Without the determination and persistence in all aspects of your trading life, obstacle will definitely appear closer and larger than they actually are.

Take a moment and assess yourself and your trading. Do you have the key elements to succeed? Which areas are presents development opportunities? When conducting a self-evaluation it is critical to be totally upfront and honest with yourself. After all, you will only be dishonest with yourself. One of the most interesting observations you can make is that all key success factors are interwoven. One factor supports the other. This is why your Forex education is a continuous journey of forex strategy, money management and self-mastery. Set these factors as your Forex education goals and take your currency trading to new heights.

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Foreign Exchange Market

The foreign exchange market (currency, forex, or FX) market is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when worldover countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Now, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.

The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.

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Apa Itu Forex ?

Foreign Exchange (forex) atau dikenal sebagai valuta asing (valas) merupakan salah satu pilihan investasi yang berkembang di Indonesia saat ini. Forex Trading adalah transaksi perdagangan nilai tukar mata uang asing di pasar uang internasional. Pasar forex merupakan pasar uang terbesar di dunia.

Yang melakukan transaksi di pasar forex adalah: pemerintah-pemerintah di dunia, bank-bank utama dunia, perusahaan bertaraf internasional, hedge fund, spekulan valas maupun individu. Sehingga dengan banyaknya pemain di pasar forex ini menyebabkan perputaran uang menjadi sangat cepat. Transaksi yang terjadi lebih dari 1,9 triliun US dollar setiap hari sehingga membuat uang dapat berpindah tangan dari satu tempat ke tempat lain hanya dalam beberapa detik.

Seperti halnya bursa saham para pemain forex dapat melakukan trading dengan menggunakan jasa perusahaan pialang (commision house) atau melakukannya sendiri secara online melalui internet.

Perdagangan forex memiliki beberapa kelebihan dibandingkan dengan perdagangan produk-produk keuangan lain seperti perdagangan saham, yaitu:

24 Hours Trading
Dapat dilakukan 24 jam sehari, 5 hari seminggu, kapan dan dimanapun kita berada.

Likuiditas
Sangat likuid dengan banyaknya broker/dealer yang bermain dalam pasar forex.

Rendahnya biaya transaksi
Komisi broker relatif kecil, bahkan untuk trading online melalui internet tidak ada biaya transaksi namun hanya dikenakan biaya yang jumlahnya beragam. Selain itu spreadnya juga kecil.

Potensi keuntungan 2 arah (naik maupun turun)
Memiliki potensi keuntungan baik pada mata uang yang menguat maupun pada mata uang yang melemah.

Margin Trading
Perdagangan dengan margin membuat daya beli investor melebihi jumlah modal yang dimiliki.

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Trading characteristics

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters, called Fxmarketspace opened in 2007 and aspired but failed to the role of a central market clearing mechanism.

The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.

Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in gross domestic product (GDP) growth, inflation (purchasing power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency). For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.5465 dollar. Out of convention, the first currency in the pair, the base currency, was the stronger currency at the creation of the pair. The second currency, counter currency, was the weaker currency at the creation of the pair.

The factors affecting XXX will affect both XXX/YYY and XXX/ZZZ. This causes positive currency correlation between XXX/YYY and XXX/ZZZ.

On the spot market, according to the BIS study, the most heavily traded products were:

* EUR/USD: 27%
* USD/JPY: 13%
* GBP/USD (also called sterling or cable): 12%

and the US currency was involved in 86.3% of transactions, followed by the euro (37.0%), the yen (16.5%), and sterling (15.0%) (see table). Note that volume percentages should add up to 200%: 100% for all the sellers and 100% for all the buyers.

Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EUR/USD and USD/ZZZ. The exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market. As the dollar's value has eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased.

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