Forex Trading Made Easy

How Long to Demo Test Forex

2012-05-22T11:19:00.002+03:00

Before you trade live with Forex, you’re going to need to demo test for a while. This is true whether you’re using fundamental or technical analysis, price action, or some other method of determining your Forex trades. It’s true whether you’ve traded another commodity before or not. It’s also true whether you’ve backtested or not. A lot of beginners ask how long it’s going to be before they can become live traders, and the answer is usually, «Longer than you think.» Beyond that it’s going to vary with every person. About how long should you plan on demo testing before you go live?

If you’re demo testing, you’ve probably already established some kind of trading method which was successful in backtesting, at least to some degree. If you have a solid foundation, you can open an account with a Forex broker and trade virtual money for free, usually indefinitely, before you invest real money in the foreign exchange market. How long you demo test is going to depend in part upon the timeframe you are going to be trading. Position traders who stay in Forex trades for weeks or months obviously will have to demo longer than interday traders who stay in trades for hours or days. Even if you’re doing intraday trading on very short time periods or scalping, however, you should plan to demo test for at least a few months before you go live.

Why demo test that long, even if you’re trading on a fast timeframe? Demo testing is about more than just proving your method works successfully and consistently in real time (though that’s the biggest part of it). It’s also about getting to know yourself as a trader. While demo testing Forex, you’re going to encounter a lot of unexpected situations. You might discover that you can only trade during certain days or hours for example — that’s something you probably overlooked with your backtests. You may find that you are too tired to trade during nighttime hours, even though you backtested that time period. Or you might find out that you have to set up a complex alert system to know when to trade. Maybe you didn’t realize how stressful trading could be in real time. There are a lot of reasons that you may find trading more difficult in demo phase.

It’s important to iron out as many of those issues as you can during the Forex demo phase, while you don’t have real money on the line. Once you deal with those complexities and understand how trading will fit into your real life and you are consistently profitable for several months, you may be ready to trade. Four to six months is a good timeframe to demo before going live (that’s four to six months of consistent profit). At a very minimum, shoot for two to three months. And remember you can always go back to demo testing if things don’t work out when you go live — it’s very common and it happens with a lot of Forex traders. You’ll also probably routinely go back to demo every time you have to make a modification to your trading method.

Factors That Affect Forex Exchange Rates

2012-05-09T11:50:00.000+03:00

Whether you’re going to be using fundamental analysis or not in your trading, you’re probably curious about the factors which affect Forex exchange rates. If you’re relatively new to trading, this is a subject you may not be well versed in. The economic factors surrounding Forex are myriad and complex, so you may never have a thorough understanding of them (plenty of successful traders don’t), but the more thorough your understanding is, the more useful knowledge you have at your disposal.

Some of the main factors which affect Forex exchange rates include interest, inflation, trade balance, speculation, foreign investment, and central bank intervention. Interest rates and inflation are interlinked concepts. When inflation is high, central banks in countries may raise the interest rate for borrowing money, which reduces consumer spending in turn. When inflation is low, central banks may drop interest rates to indirectly encourage consumer spending. Currencies that have higher interest rates offer a more substantial return, so oftentimes Forex investors will buy into them and sell currencies with low interest rates to make a profit. Doing this over an extended time period is known as a carry trade.

Balance of trade (a country’s imports vs. that same country’s exports) may also impact the level of demand for its currency. When a country exports more than it imports, that country has a positive trade balance, and there is more demand for that country’s currency on the Forex market.

Speculation from large and small investors may also impact the values of currencies. Traditionally it has been large investors that really move the market (usually not private traders), though retail spot Forex traders now have more of a measurable impact than they used to. Traders speculate based off of many different things including economic reports and news. Similarly, investors often flock to currencies they perceive as «safe.» For a long time that was the US dollar. When confidence in a currency drops, investors sell that currency off. Both actions can impact the value of the currency.

Finally, raising and lower interest rates aren’t the only way in which central banks can intervene with their respective economies and alter the values of currencies. Central banks may also engage in quantitative easing, which is a last resort to resolving economic difficulties if lowering interest rates fails. This is a way in which central banks can increase the liquidity of a country’s banking system. Too much of this and the country’s currency may lose value, which is why it is risky and a last resort.

As you can see, there are many different factors which drive the fluctuating prices on the foreign exchange market. To actually trade fundamentals involves a tremendous amount of research; even among professional economists there is a great deal of disagreement as to how things really work. Nonetheless, trading fundamentals does work well for some Forex traders. Whatever you choose to do, do thorough backtests and demo tests before you trade with real money. Never speculate wildly-have a method in place for your decisions.

Questions to Ask Before Opening Forex Account

2012-04-23T12:42:00.001+03:00

Before opening a Forex account, there are some questions you need to ask and some features you need to carefully examine. Everyone has unique needs, and every broker caters to different ones. The longer you are part of the trading world and the more time you spend testing before opening an account, the more familiar you will be with Forex brokers, and the less likely you’ll be to make a mistake when selecting yours. Considering however that you will need to demo test on your new broker’s platform for months before going live, you probably want to figure out what broker you’re going to use early on in the process. Here are some things to look for and consider:

Is the Forex broker registered with the National Futures Association (or other applicable regulatory agencies)? Is the broker accredited by the Better Business Bureau?
How long has the broker been around? What kind of track record do they have? Check out customer reviews — take them worth a grain of salt in some cases. Some reviews are dishonest (traders love to blame brokers for their own failures), but others may give you a good idea of what you’d be dealing with.
How is the broker doing financially? You don’t want to sign up with a broker who is at risk of going under.
How do you add or remove funds from your Forex account? How long can you expect it to take, and are there any minimums you should be aware of? Since this is your money it is very important that it is accessible!
Find out how the broker makes money. Are the spreads fixed or variable? How do they compare with the spreads charged by other Forex brokers? How much can the spreads expand during volatile times? How much slippage can you expect? Do you need to pay commissions, or are the spreads the only fees for trading? Does the company charge «maintenance» or other miscellaneous fees? Is there a minimum required balance or a minimum required number of trades per month?
Does the broker offer the leverage you need? How does the broker handle margin calls? Some brokers give you a warning — others just close your account. There are many ways this issue can be handled and it is extremely important for you to know all the details.
Do you need to trade a certain minimum lot size? Or can you trade as much or little money as you wish? This is especially important for traders who do not have a substantial amount of money to fund their Forex accounts.
Will the platform be sufficient for you? You’ll be demo testing to make sure that you’re satisfied with the platform and that the broker performs at the level you hoped, but a cursory look can tell you whether the platform is likely to cut it or not. Don’t forget that you can use another charting platform to plan your trades, like MetaTrader. You’ll still be executing them with your broker’s platform.
Test out customer service. Ask questions while you’re testing to make sure that the company responds quickly and is friendly and helpful! You may be used to poor service at your bank, but good Forex brokers offer a much higher standard of service, so look for it and demand it.

If you have any comments regarding opening a Forex account, please feel free to post them here.

Benefits of a Forex Community

2012-03-29T11:56:00.000+03:00

When you’re getting into Forex, one thing which you may overlook is the value of having a community. There are many different Forex communities online, and while you may think of investing as a competitive activity by nature, you will be surprised to discover just how cooperative and friendly the Forex online community can be. What are some of the benefits of joining a community and getting to know some of your fellow traders?

Having a community gives you access to a whole plethora of resources which you would not otherwise have. You may be tempted to go it alone, but you will be able to learn far more trading strategies and methods from others than you would on your own, and you’ll also have a chance to hear first-hand how they worked out for others. If you need help on a particular method or system, you’ll be able to speak to other traders at various levels of experiences who are working on using that system or have used it successfully for a long time. This can help you to solve problems with your Forex trading much faster than just reading ebooks! Best of all, most Forex communities are free, so the knowledge which you receive will be free as well. You can get a lot more out of a free community with an open exchange of information than you can paying for a system. If you do decide to pay for a system, you will be able to turn to the community to find out which systems or training programs are worth the money. A Forex community also provides a platform for reviewing brokers.

A community also gives you accountability. Many traders routinely report their progress (or lack thereof) to their fellow traders online. It can be a challenge to maintain discipline and keep working on something when you are likely to make many mistakes and experience many setbacks along the way. Forex traders often place their trades together and alert each other to trading opportunities. Being able to trade alongside someone else can help you to stay focused and not miss Forex opportunities. It will also make you less likely to revert to negative behaviors like gambling and unnecessary risk-taking since your loss could become someone else’s loss as well.

A community of Forex traders can provide you with encouragement along the way and can assist you in developing greater self awareness. One thing which you will notice about Forex traders online is that many of them are generous with their knowledge — while you are certainly involved with Forex in order to further your own gains, you will learn just as much from the examples of generosity you discover in others around you. The gain of one can become the gain of many — and just as other Forex traders help you out while you’re getting started, you will one day be able to lend a hand to someone else who is entering the world of trading.

Choosing a Currency Pair to Trade

2012-03-16T12:02:00.002+02:00

Your charting software and your trading platform probably offer you dozens of different currency pairs to trade. Some of these Forex pairs may include your base currency while others may not. Some may be simple, basic pairs you’ve heard of — GBP/USD, GBP/JPY, USD/CHF, EUR/USD and so on. Others maybe look like nonsensical combinations of letters to you. Should you trade exotic currency pairs at all, or should you stick to the more basic pairs? Should you bother with cross currency pairs that don’t include your base currency? Are some pairs better than others? How many pairs should you trade?

There is no one-size-fits-all answer to any of these questions. Generally speaking, the more basic Forex currency pairs will have higher trading volumes than the obscure pairs. Volatility may be something which you want to steer towards or away from, depending on what kind of a trader you are. If your method mostly involves catching big trends, you’ll need to find pairs which tend to trend heavily. If you are good at making money in ranging markets, then this may not be as big a requirement for you. Choppiness is something you’ll want to avoid regardless of your method since it can result in a lot of fakeouts.

Every Forex currency pair has its own distinctive personality, and every pair also transforms with time. That means that a pair which works for you one year may fail the next. A pair which performs great for you on one timeframe may be awful on another — and that same reality may reverse some time later. Start out by watching a variety of Forex currency pairs, and try to get a feel for their personalities at that point in time. You can also look over historical data to get a feel for how pairs have behaved in the past. Then you can start backtesting currencies which look as though they may work well with your system. Your method may perform very well on one pair and very poorly on another — and that relationship could change completely over time.

Some Forex traders stick with one or several pairs all of the time in order to keep things simple — while others trade dozens of pairs according to whatever seems to be offering the best setups. This is entirely a question of personal style and comfort as well as a question of what is going to make the most sense with your trading method. Backtesting offers a great starting point for choosing pairs to demo test on, but be aware that the changing nature of the market means you may either have to go back to backtesting now or in the future, or you may need to find a way to incorporate those changes into your trading plan in real-time while demo testing. Either way, make sure you’ve demo tested successfully and have several consecutive months of consistent profits on whatever Forex currency pairs you’re planning to trade before you go live with any of them.