1) Watch the News
The Forex market is driven by economic news and data published by governments around the world. Many Forex traders will wait until announcements are due and will trade when the announcement is made. This can cause great swings in the value of the currency and can be very profitable. This is a short term strategy and one must set very tight stops (see below) and watch the market very closely to capture a profit.
News events to follow include:
(a). Interest Rates
(b). Unemployment Figures
(c). Inflation
(d). Business Confidence Measures
(e). House Sales
Generally news from the US has the biggest impact although the UK, Japan, Germany are also important. In the future China/India will have an increased impact as their economies are growing and linking more closely with the rest of the world.
2) Follow the Trend
At any one time the market will be in one of three phases; and upward trend, a downward trend or no trend at all. How do you determine the trend? Simple look at the historical charts for that currency pair and it will be obvious.
Never go against the major trend as a general rule. You are more likely to make greater profits if you trade with the general trend. Determine the general trend by looking at the greater time frame. For example for trading short term you should look at the daily trend first and then see the direction of the market. Then only trade in that direction at the smaller time frame.
3) Time Frames
It is possible to trade Forex in different time frames, from a few seconds a trade up to months or even years. Which time frame you trade in will depend upon your attitude to trading and your lifestyle. Personally I tend to trade intra-day (within a single day) around 50% of the time, and the rest of the time I trade across multiple days (I.e. longer positions).
I don't like spending all my time staring at the screen which you have to do if you trade intra-day.
With today's modern computer technology it is possible to trade using automatic software programs that sit on your computer and do everything for you.
Personally I trade with 4 of these robots and I also trade my own manual systems. My ideal would be to use the robots on a full time basis and then I can stay on the beach!
4) Money Management
This is a crucial aspect of all trading. You must use money management! If, for example, you have US$ 5,000 to trade then you should only risk 5-10% maximum on each trade or US$250-500. When you are trading you will make mistakes and bad decisions. By risking smaller amounts of money it wont matter if you lose it. With careful money management you can make winning trades only 20-30% of the time and still make a lot of money. You keep you losses small and keep your profits.
5) Stop Losses
Stop losses are the tools you use to manage your risk. When you make a trade a stop loss must be placed so that you know the maximum amount of money you will lose if the trade goes against you. For example; You believe that the US$ will drop its value so you buy GBPUSD (as the GBP will rise against the US$ as it drops). You then place a stop a few points below your open position so that if the trade goes the wrong way it will be automatically shut down once you pass through your stop.
There are guaranteed stops and there are normal stops. A guaranteed stop is filled at the level you specify whilst a normal stop will be filled as soon as possible.
6) Chose Your Broker Carefully
You will need a broker in order to place a trade in the Forex market. There are many factors to consider when choosing a broker including;
The Forex market is driven by economic news and data published by governments around the world. Many Forex traders will wait until announcements are due and will trade when the announcement is made. This can cause great swings in the value of the currency and can be very profitable. This is a short term strategy and one must set very tight stops (see below) and watch the market very closely to capture a profit.
News events to follow include:
(a). Interest Rates
(b). Unemployment Figures
(c). Inflation
(d). Business Confidence Measures
(e). House Sales
Generally news from the US has the biggest impact although the UK, Japan, Germany are also important. In the future China/India will have an increased impact as their economies are growing and linking more closely with the rest of the world.
2) Follow the Trend
At any one time the market will be in one of three phases; and upward trend, a downward trend or no trend at all. How do you determine the trend? Simple look at the historical charts for that currency pair and it will be obvious.
Never go against the major trend as a general rule. You are more likely to make greater profits if you trade with the general trend. Determine the general trend by looking at the greater time frame. For example for trading short term you should look at the daily trend first and then see the direction of the market. Then only trade in that direction at the smaller time frame.
3) Time Frames
It is possible to trade Forex in different time frames, from a few seconds a trade up to months or even years. Which time frame you trade in will depend upon your attitude to trading and your lifestyle. Personally I tend to trade intra-day (within a single day) around 50% of the time, and the rest of the time I trade across multiple days (I.e. longer positions).
I don't like spending all my time staring at the screen which you have to do if you trade intra-day.
With today's modern computer technology it is possible to trade using automatic software programs that sit on your computer and do everything for you.
Personally I trade with 4 of these robots and I also trade my own manual systems. My ideal would be to use the robots on a full time basis and then I can stay on the beach!
4) Money Management
This is a crucial aspect of all trading. You must use money management! If, for example, you have US$ 5,000 to trade then you should only risk 5-10% maximum on each trade or US$250-500. When you are trading you will make mistakes and bad decisions. By risking smaller amounts of money it wont matter if you lose it. With careful money management you can make winning trades only 20-30% of the time and still make a lot of money. You keep you losses small and keep your profits.
5) Stop Losses
Stop losses are the tools you use to manage your risk. When you make a trade a stop loss must be placed so that you know the maximum amount of money you will lose if the trade goes against you. For example; You believe that the US$ will drop its value so you buy GBPUSD (as the GBP will rise against the US$ as it drops). You then place a stop a few points below your open position so that if the trade goes the wrong way it will be automatically shut down once you pass through your stop.
There are guaranteed stops and there are normal stops. A guaranteed stop is filled at the level you specify whilst a normal stop will be filled as soon as possible.
6) Chose Your Broker Carefully
You will need a broker in order to place a trade in the Forex market. There are many factors to consider when choosing a broker including;
(a). Spread: this is the cost to you for executing a trade
(b). Reputation; use the internet to research the broker to see what other people are saying
(c). Customer service: Are they responding well to problem?
(d). Stops: Are they guaranteed?
(e). Internet trading with strong reliable connection.
7) Let Profits Run
When trading with a major trend and making money, it becomes very tempting to close your position and take the profits. However often it is more profitable to stay in the position and let it run; strong trends are key to making money.
How can this be achieved when still protecting your position? Well as the trend moves in your favour move you stop along with it. In many cases the trend will move so much that your stop point moves past the point where you made the trade. This means that your profit is guaranteed whatever happens.
Remember as the position moves more and more in your favour you stop moves with it and your guaranteed profits increase!
8) Look For The Right Patterns
I am a technical trader myself although I also look at the news as it does have a big effect on what happens.
In trading, price and time are the 2 most important factors. Patterns repeat themselves in time and in price. If you look at a historical chart you will see patterns that repeat themselves. For each pattern certain behaviour will 'probably' occur after you see the pattern.
Trading is a game of probability; if you see a pattern you can predict with a certain level of confidence which way the market will go next. With a tight stop policy you can make successful gains and minimise your losses.
Remember; patterns do not work 100% of the time but with a careful money management system they are profitable.
Stock markets also work in cycles in time. You can predict at what time in the future a market will turn direction.
9) Record Your Trades
It is very good discipline to record every trade that you make in order to learn what worked and what didn't. The details of each trade that you record should be:
(a). Date/Time
(b). Currency Pair Traded
(c). Buy/Sell
(d). Stop Loss
(e). Profit Target
(f). Reason Why Entering Trade
(g). Comments on Trade
Be honest with yourself, as this will provide a vital link back to your performance. If you are making mistakes then record them, otherwise you will never learn.
10) Paper Trading
Before committing real money it's important to practice first. This is done by paper trading whereby you make pretend trades and track the results. Now in the past this literally had to be done by trading with a pen and paper; now though almost all electronic brokers allow you to set up a virtual account to practice your trading. This is an excellent tool as it allows you to get familiar with the broker and make all your mistakes before you commit real money.
Remember; trading is a psychological battle with yourself. It is easy to become emotionally involved with your investments and understandably so. However it is very important in trading to be disciplined. Do not let greed and fear get in the way. Be rational at all times and you will succeed!
When things go wrong get out quickly, and when they go right then run with the profits!
Did you find this article useful? Look out for more articles in the future. In the meantime check out this link for more information on automated forex trading.
http://www.AutomaticForexIncome.com
Article Source: http://EzineArticles.com/?expert=Patrick_Cheesman
http://ezinearticles.com/?10-Steps-to-Successful-Forex-Trading!&id=1822533
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