Forex Trading Made Easy

Dealing with Distraction in Forex Trading

2012-07-16T22:39:00.001+03:00

When you sit down to place a Forex trade, do you find it difficult to concentrate some days? If so, you probably should do something about it, since trading the currency market when your head isn’t in the game is a pretty good way to lose money. When you’re unfocused, you could make a poor decision which you wouldn’t usually make if you were thinking straight. You might miss key elements of what’s going on if your mind is elsewhere. Here are some tips for dealing with distraction when you’re trading the FX market.

When you’re trading, don’t do anything except trade. That doesn’t mean if you’re in a trade for hours, days, or longer than you should sit in front of your computer all day. It simply means when you’re actually placing an entry or sitting down at your computer to analyze the trade you’re in and make a decision about it, that you shouldn’t also be watching television or browsing videos online. It may help you to actually make a list of Forex-related websites which you can browse while you’re trading so you won’t get distracted surfing the internet trying to answer a question.
Let other people in your home know what you’re doing. Make it clear to others how important your trading is, and explain that if you are distracted while you’re working, you could lose focus and consequently money. Others should understand you need a quiet, focused environment while you’re dealing with the market.
Keep your workplace clean and uncluttered. Try to keep materials around you limited to trading materials while you’re working. Some people also like to put on music while they trade — some music might distract you but other music might keep you focused. Classical music is a popular choice.
Deal with potentially stressful activities after you do your trading, if that is possible. If you think you might find a distracting message from your ex in your email inbox for example, it’s probably best not to bother with your email until after you’ve done your trading. The last thing you want to do is trade while thinking about an unrelated and emotionally unsettling issue. In fact, if there’s nothing you can do about being really stressed out right now, you might consider taking a day off trading altogether so you can get your focus back.

The foreign exchange market is a great way to earn consistent profits, but you can only do that if the most important ingredient in your trading system is working — and that’s you. Being distracted while trading Forex is a recipe for disaster, and if you allow it to happen continuously you’ll be building up bad habits. So address issues of distraction now and start building good habits instead. Those good habits will help you to not only become profitable in the short term but also to create long term success and become a more focused individual altogether. Increased discipline and confidence can be another great outcome of FX trading!

If you have any ideas on dealing with distractions when trading currencies, please feel free to share them using the commentary form below.

When Should You Give Up on Forex Trading?

2012-07-09T11:52:00.001+03:00

It’s not a pleasant subject, but it’s one that comes up often among Forex traders — when is it time to quit? The fact is that this is a field in which many people try, but few actually succeed. The failure rate among Forex traders is estimated to be higher than 95 percent (possibly even higher than that). Considering that, the odds are weighted heavily against you. The foreign exchange market is a tough place to cut it, and not only that, but trading can have an addicting effect on many people. There is a strong element of chance which is always present when you trade currencies, and so for many people who have lost a lot, it becomes a gamble to try and get back on top. Many people trade for years and years without becoming profitable. When do you call it quits and move on with your life?

This is actually a two-dimensional question that doesn’t take into account a lot of factors that play in your favor — the biggest one being the ability to demo test without investing a dime of your own money. When is it time to quit trading live? If you aren’t consistently profitable, and your wins and losses are both the result of chance, or your system isn’t working, it’s definitely time to quit trading with real money, but it’s not necessarily time to quit trading FX altogether. If trading is taking over your whole life, it’s time to take a break from trading live as well-and maybe even a break from demo testing, at least until you get your life in order. This is true even if you are profitable.

It’s important to realize that even people who are good at Forex and successful at it usually take years to get to that point. Those years are generally full of pitfalls and failures on the way to success. So if you’ve been struggling, it could mean Forex isn’t for you, but it could very well mean the opposite. You could just be struggling along the road to success and profitability. You shouldn’t be investing real money if you aren’t doing well, however, not when you can trade with virtual money for as long as you want or need. Take the pressure off your finances, learn responsibility and patience, and demo test until you are profitable if you still think FX is for you. It’ll pay off hugely in the long run. In other words, don’t cut yourself out of the running too soon — try and figure out if trading really isn’t for you or if you’re just going through a rough patch before you give up.

Anything, even profitable currency trading, can become addictive (most people have met at least one workaholic in their lives). It’s important that whether you have real money on the line or not, and regardless of whether you’re winning or losing, you learn to maintain a proper balance between trading and other activities in your life. Lead a full, rich life, and you’ll be far more likely to cultivate the right attitude for success in the market and in your other pursuits.

Why You Should Demo Trade Forex

2012-06-14T09:22:00.004+03:00

A surprising number of Forex traders try to start trading live as soon as they think they know the ropes. There are numerous reasons this is a really bad idea and is likely to result in you blowing your FX account in no time. Most traders wash out of live trading within a couple of months at the most. There are few professions with a higher rate of failure. Demo foreign exchange trading gives you a much better shot at success. Here are some of the reasons why you should trade with virtual money for a while before switching to the real thing.

You don’t have to lose money learning how to trade. Unlike most professions, which require you invest money in your education, you can actually train on Forex demo account for as long as you want without spending any money at all. There is no limit to how long you can demo test. So why lose real money when you don’t have to? One thing which isn’t different about Forex is that it’s a real profession, not a hobby, and as such it requires that you do invest time and effort into learning. Save up your money for when you’re ready to profit.
The practical implications of trading in real time may surprise you. You could have a system which performed very well in backtesting and be useless in real time because you aren’t awake at the right hours to trade or you are at work and have no way of placing your trades. That doesn’t mean you should go back to square one, but you’ll definitely want to find out that you need to make some adjustments to your trading or your lifestyle without money on the line.
Your emotions may surprise you. How many of us have gotten nervous just placing a backtest? The emotions which you have to deal with when trading in real time are usually amplified, especially since you have more (or less) time to think about your trading decisions. You may also not be able to predict your reactions to certain circumstances. It’s hard enough dealing with FX losses-but how will you deal with wins? Many Forex traders are surprised to discover that when a trade starts winning fast, their emotions can be just as challenging to navigate.

There are some things which you simply cannot backtest. You may be able to test the theoretical application of a trading method in backtesting, but you cannot test the actual application of that method without demo testing. There is a huge difference between the two, and you won’t realize how huge until you try to trade in real time. So set aside the time and effort and save up your budget. Demo test Forex until you become consistently profitable. Some traders do well on demo testing from the start, but for most there will at least be some hurdles to overcome. You don’t have to lose money overcoming them.

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.