Forex trades virtually around the clock from the Asian market open on 7 am Morning until the U.S. market close on Saturday 5 am, Malaysian time, making it the attraction for there is this constant access to make a trade.

In every transaction, a forex trader trades the currencies in pairs for example, if you have purchased euro and sold U.S. dollars, it would be stated as a euro/dollar pair. Long one currency and short the other. A position is expressed in terms of the first currency in the pair.

With a volume of over $2.5 trillion daily, the Foreign Exchange market is the largest and most liquid financial market in the world—more than three times the aggregate amount of the U.S. equity and Treasury markets combined. This means that a trader can enter or exit the market at will in almost any market condition with minimal execution risk. Due to the sheer size of liquidity, a continuous supply-and-demand driven product, and the accessibility of trading make many professional traders consider the forex market like a bank’s ATM.

The forex market is so vast and has so many participants that no single entity, not even a central bank, can control the market price for an extended period of time. Unlike other financial markets, the forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations, and individuals, trading one currency for another. The lack of a physical exchange enables the forex market to operate on a 24-hour basis, spanning from one zone to another across the major financial centers.

When you buy a stock, an option, a bond or a mutual fund, you are charged a commission. In the Forex market, you do not have to pay a commission. You pay what you see. The broker earns the difference between the buy-ask spread.

The Forex market allows you to trade in very high leverage up to 1:400 which allows you can to control $100,000 with as little as $250. This means that you can make your money work harder for you in the Forex market than it can anywhere else. Imagine the money you can make, however this high leverage, you can lose even more if the trade goes against you.

Increased leverage is also the point that many people say that investing in the Forex market is risky. Granted, this amount of leverage may seem aggressive, but the Forex market gives you the perfect antidote for the risks associated with increased leverage, that is guaranteed stops.

In the Forex market, you have the ability to determine at exactly what price you would like to enter a trade and at exactly which price you would like to exit and these prices are guaranteed.

Guaranteed stops allow you to specify exactly how much you are willing to risk which you can’t have in the stock or options market. Sure, you can enter a stop order to take you out of a trade if the stock starts to move against you, but there is no guarantee that you will be out at the specified price. In the Forex market, you have guaranteed stops under normal market conditions.

“If all the rich people in the world divided up their money among themselves there wouldn’t be enough to go around.” - Christina Stead, House of All Nations (1938)

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Currency Trading – The FOREX Market

However, it is a stumbling block for a great number of traders, since most individuals trading in the markets today just don’t believe that money management is of utmost importance.

A trader may be analyzing the crucial and latest fundamentals or using the most advance technical software; most traders believe that these are the most important and should take top priority over everything else.

They just think that money management isn’t just as important, thinking that the worst will never happen to them and they are smarter than most of the other traders and would never lose that much money.

They obviously think that they are not that stupid and their analysis are flawless. Truthfully, to satisfy one ego’s need for feeling brilliant, it’s all a matter of probabilities and has nothing to do with being smart.

Bad things can happen to anyone especially in the markets, it is volatile and unpredictable simply because it is driven purely by emotions. The forces of the markets can overcome even the most experienced traders. Just like the Tsunami, you may see it coming but you can’t get out of the way in time.

The 1929 and 1987 market crashes, the many housing bubbles, September 11, the dot com bubble of 2000, the recent financial crisis and the list will go on for there will be more to come.

Some situations are worst than others, and it is that unpredictable nature of the markets, that sound risk management can help you to stay in the markets for a longer period of time. Try to omit this and you’ll blow up your account before you can even complete your learning curve.

It is all about probabilities and making sure the edge is on your side and it is working for you and not against you. A simple stop-loss can save you from an emotional shock and devastation, which works just like a safety net preventing you from losing it all and you can always reposition yourself and be in control again.

Basically, a money management system is a part of running a business, and you must understand the need for it. You will definitely take on a greater meaning and value in achieving success in your trading.

“The safest way to double your money is to fold it over and put it in your pocket.” – Kin Hubbard (1868 – 1930)

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The Importance Of A Money Management System In Trading

Are your trading problems, the result of your belief system or your inadequate motivation or dedication? Maybe you have been trading all the while in such a way that does not capitalize on your strengths.

If you are doing what you have been doing all this while in your trading, then you need to change and changing yourself as a trader can be the greatest challenge because it has become a pattern or rather your habit.

It may look easy to initiate the change, but it is far more difficult to sustain it as you are likely to relapse into your old habit patterns.  You have to find a way to repeat a desired pattern over again and again in the same way and in the same situations every occasion that old habit of yours presents itself. Initially, enacting your new behaviors will require conscious effort but with repetition, the behavior becomes automatic, it becomes an internalized part of you.

You are not going to develop and internalized the new behaviour; you cannot become an elite performer. Take a look at the world’s great performers, their effects generated from their exponential learning, they are able to exploit their talents and use their strength to enter and benefit from the enriched environments from within.

You know yourself best, try thinking harder and you’re most likely to find the personal strengths that are able to match and synchronize with your trading. It could lead you to those environments that can bring out that outstanding performance in you.

In order to learn to perform well in your trading you have to learn about yourself. If you can do it right, it can be the beginning of a great adventure and a phenomenal learning experience of a lifetime.

‘‘There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again and again and again. This is because human nature does not change.” -Livermore

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Your Trading Problems Are Internal

Dead stock pileup that cannot be sold is losing you money; it’s like being stopped out of trades, money gone. Your overheads to run your trading business is buying computers, monthly internet access subscription, trading software, educational books, quotes, an office setup, trading capital and so on.

When your approach to trading is as a business, your psychology will change to a more professional approach. Your seriousness to your approach in your trading makes it closer to your success as you run it as a business rather than a hobby. You may start this trading business venture part-time but if you keep on doing the things that can help you to improve your trading performance, you’ll be consider doing this full time.

Professional traders do not just start creating exceptional profits from day one. They spent time to learn everything about trading. They love what they do. It is a journey and it takes time, discipline, and persistence to be a successful trader. You need to practice, practice, and practice more.

Your initial goal is to be able to trade well, not to make a lot of money. The money part will come naturally; it is the by-product of your trading skill.

Consider yourself starting out with a new company and the first thing you do is to plan out your work. How many hours you will need to put in weekly in order to meet your performance? How will you manage, and what kind of a scarifies you are willing to make in order to do well? How will you create accountability?

Write out a business plan. It has an important psychology impact on your success in your trading business to exercise your commitment instilling within yourself the discipline that you need to succeed, just like the discipline and preparation needed before making a trade. It has the same psychology impact.

Maintain a ledger of all your trades and evaluate your performance on a weekly, monthly, and annual basis. Look at your strengths and weaknesses that appear to correspond to your trades. Identify your weaknesses and find solutions to improve on them. Do this often and you can be sure to be on your way to become a profitable trader.

“Success in business requires training and discipline and hard work. But if you’re not frightened by these things, the opportunities are just as great today as they ever were.” – David Rockefeller

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Run Your Trading As A Business

To survive in the markets, you need to equip yourself with the necessary skills to enter the markets, if not it will be very hard for you to succeed in trading.

Paper-trading is the only way to develop your trading skills; it allows you to practice without the pressure of competing against others. If you cannot make money in paper-trading, then you will not be profitable trading with real money.

Many said that paper-trading is useless because you will not able to have the psychological emotions that are experienced when trading with real money.

Surprisingly, you may find that paper-trading can create a very similar emotional roller coaster as trading with real money, if only your approach to paper-trading is with the same dedication as the same approach trading with real money.

The deeper psychological and emotional aspects will come in later, after you have developed your trading skills. It is better to sharpen your trading skill first, and then go on to develop your trading psychology.

Those who are impatient with their paper-trading are allowing themselves to be eaten alive by the professionals. Patience is the key to your trading skills and approach. This is time very well spent, as there are no shortcuts to success in trading.

Fighter pilots are required to fly and combat successful in a flight simulation before they are permitted to take an F18 fighter jet for spin. Any mistakes can the loss of lives and money. Paper-trading is the same as a flight simulator; make sure you know how to trade properly before you put your hard-earned money to trade.

Practice until you paper trading account is profitable. Analyze your trading results and make adjustments when necessary until you feel good about your trading. Constantly reevaluate your approach.

If you are already trading with real money and are not profitable trading with, stop trading and go back to paper-trading again. If you can be again profitable paper-trading, then chances are the problem is your psychology and you may need some additional adjustments to uncover your psychological conflicts.

But if are losing money in your paper-trading this time, then you may have just been lucky the first time when you paper-traded and did not paper-trade long enough to experience it.

Your trading approach needs to be adjusted. Until you have a proven trading approach to achieve consistent profit, then you will know that your problem lies in your trading approach or if your problem is merely psychological.

“The idea of perfect closes your mind to new standards.. When you drive hard toward one ideal, you miss opportunities and paths, not to mention hurting your confidence. Believe in your potential and then go out and explore it; don’t limit it.” – John Eliot, Ph.D., Reverse Psychology for Success

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Paper Trade To Achieve Success In Your Trading

Shares of General Motors and Merck rallied as U.S. stock indexes rose for the fourth consecutive day, ending their best week since November.

The Dow Jones Industrial Average rose 53.92, or 0.8%, at 7223.98, ended the week 9% higher. The S&P 500 added 5.81, or 0.8%, to 756.55. Technology stocks were largely weak on the session but the Nasdaq Composite closed 5.4 points, or 0.4%, higher at 1431.5

Gains in the health-care sector drove major stock indexes higher with Merck climbing 3.04, or 13%, to 27.07, making the stock’s 23% two-day gain the best two days in its history. Optimism over the company’s planned merger with Schering-Plough helped inspire an upgrade on Merck shares to outperform from market perform by analysts at Sanford Bernstein on valuation.

Spotted Merck a few days ago, a strong bullish reversal and waited for it to break above $23.00 price level before betting on it. As soon as it was above, bought MRK April 22.50 Call @ $2.05 without any hesitation and by yesterday’s close it has rose to $5.10 giving me a profit of $3.05 or 148% in just 2 days.

Last week was stocks’ best since November. Many traders though believe it is a temporary bear market rally and will soon fade after a run of as much as 20%. But not everyone is gloomy, and some traders believe this at last could be the sign a bottom being formed. I think one has to be very careful about mistaking trading rallies for a bull market as there’s this intense desire to try to call the bottom. With options expiration in the coming week may be a further positive sign for the markets.

The major earnings in the coming week include FDX, GE, NKE, ORCL and PALM.

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” – Peter Lynch

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Merck Bullish Reversal Bring Outstanding Gains

Fears that some iconic companies would have to seek yet more government assistance continue to rise. Financial stocks were bashed in the past week, with the S&P financial sector losing 19%, compared to the 7% decline in the overall stock market. The meltdown in financial company stocks in the past week comes on the heels of the government’s deal to up its stake in Citigroup.

The Dow closed up 32.50 points at 6626.94, but is off 6.1% on the week. The S&P 500 Index finished up slightly 0.12%, but losing 51 points or 6.9% to 683.38 closing for the week.

The Nasdaq slumped 83 points on the week or 6.1 percent, to close at 1293, its biggest decline since the Nov. 21 week when it last set a new low. Apple fell 4% after analysts at J.P. Morgan cut their estimates for the computer and iPod maker.

Economic data in the coming week is important for markets, but the most important headline would be news of a plan from the U.S. Treasury to remove the troubled assets from banks books. Stocks will continue to find uncertainty until Washington finds the right prescription to help fix the ailing financial sector.

The mood on Wall Street is about as gloomy as it gets. Yet, the debate continues to rage on whether stocks are ridiculously cheap or whether the market is just finding another stopping point before reaching bottom.

In the coming week, the White House auto team will continue its review of General Motors and Chrysler, starting with a visit to the industry’s technical centers in Detroit Monday.

Fed Chairman Ben Bernanke speaks Tuesday at the Council of Foreign Relations on financial reform and systemic risk, and Treasury Secretary Tim Geithner testifies before another Congressional committee on the Obama budget Thursday and the House Financial Services holds a hearing on mark-to-market accounting, blamed by some for sinking the banking sector.

Retail sales, the big data point economists are watching in the coming week, will be released on Thursady. Weekly jobless claims and business inventories are also reported on Thursday. International trade, import prices and consumer sentiment are reporting on Friday.

“There are a terrible lot of lies going around the world, and the worst of it is half of them are true.” – Sir Winston Churchill (1874 – 1965)

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Just When You Thought The Worst Is Over …

The S&P 500 fell points to 17.74 points, or 2.4%, to 735.09, with a weekly loss of 4.5% and a monthly hit of 11%.

The Dow Jones Industrial Average shed 119.15 points, or 1.7%, to 7,062.93, with a weekly loss of 4.5% and a monthly decline of 11.7%.

The Nasdaq Composite fell 13.63 points, or 1%, to end at 1,377.84, down 4.4% for the week and 6.7% for February.

After a disastrous fall in January, February presented a like wise scenario with the Dow ended February down 11.7% at 7,062, giving it a 19.5% decline since Jan. 1 and its worst February since 1933. The S&P 500 was down 11% for the month, finishing Friday at 735, closing before its November low for the first time. The Nasdaq was down 6.7% at 1377, its worst February since 2002.

Stocks wilted in the past week as investors worried about the lack of clarity on the banking sector, even with the government’s move to raise its stake in Citigroup to near 40%. Financial stocks tumbled 7.4% Friday but were up nearly 2% for the week. The health care sector, a popular safe haven, suffered the most pain with an 11.5% decline in the past week after President Obama announced plans to reform health care.

As for some important economic data, ISM manufacturing and construction spending are reported Monday together with Personal income. On Tuesday, pending home sales for January will be announced. On Wednesday, the Fed’s beige book on the economy reporting with ADP employment and ISM non manufacturing. Thursday data includes weekly jobless claims, productivity and costs and factory orders. Consumer credit and jobs report on Friday.

There are few earnings reports with the exception of AIG, which is expected to report a $60 billion loss before Monday’s opening bell. The company and regulators are in talks this weekend about options for the government-controlled insurance giant. Others reporting include AZO, DISH, DNA, MRVL, PBR and TOL.

“Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little.” – Fred Schwed Jr.

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Dow Jones Worst February Since 1933

Concerns about potential nationalization of key financial institutions such as Bank of America and Citigroup added to the selling pressure pushing the Financial Select Sector SPDR Fund was down 2.7% at 7.34, after hitting a low point of 6.85 on the session.

The Dow Jones Industrial Average was recently down 130 points, or 1.7%, at 7338, bouncing back from a midday slide below its October 2002 closing low of 7286.27.

The S&P 500 Index was recently down 1.6% at 766. The index bounced off its November closing low around 752 on the session. The Nasdaq Composite incurred the least severe decline of the headline indices, thanks to support from large-cap tech names. The strength in large-cap tech helped the Nasdaq 100 finish the session 0.4% higher.

The Dow, which fell below a key technical level of support, the selling pressure sent the index below its November low, which will be used by proponents of Dow theory to suggest that this is the start of another leg lower. This could more selling pressure that could force the Dow to find support at the 6000 levels.

“Returns are the result of risk compensation, not price speculation.” – Mark Hebner

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Dow Jones Finished Worst Weekly Drop Since October

The Dow slumped an astonishing 382 points for the day – the worst drop in more than two months. The Dow shed 5.2% for the week to finish at 7850, while the S&P 500 lost 4.8% to 826 and the Nasdaq was off 3.6% to 1534. The stock market is closed Monday for the President’s Day holiday.

Nearly 400 of the S&P 500 companies have weighed in and reported a collective loss, even excluding financials. Many investors are now waiting patiently for a catalyst that will be able to reverse this trend and break stocks out of their sideways price range. It is the sixth quarter of negative growth, a run not seen since 1952.

Looking at the charts, you can see that the bulls were not strong enough to send the major indexes above the resistance of their respective 50-day moving averages and with the lack of a catalyst to push prices higher, many investors are choosing to remain on the sidelines. The question now is whether the indexes will break down from here and make a move below their November lows, which isn’t looking like an impossible feat.

The market’s reaction to the Obama Administration’s foreclosure plan, expected Wednesday, could be pivotal. Markets will also face plenty of economic news, including inflation and housing data. Plus, there are minutes from the last Fed meeting and a parade of Fed speakers, but the focus is most intensely on whatever plan is unveiled on housing and whether any more details are made public on the Treasury’s bank bailout plan.

On Thursday, weekly jobless claims are reported as is the producer price index, the Philadelphia Fed survey and leading indicators. The consumer price index is reporting on Friday.

Among the big names reporting earnings include CHK, DE, HPQ, JCP, LOW, RIG, WFMI and WMT.

“Prediction is very difficult, especially if it’s about the future.” – Nils Bohr

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Strong Resistance Among The Major Indexes