Forex vs. Commodity Markets – Good Trading Systems Handle Both (3/3)

If your forex trading system is capable of being used in commodity or other instrument trading then you can make a good use of the very same strategy with a completely different instrument.

Another example – proving the interchangeability of trading systems between different products –  which is much closer to the technical trend analysts is the principle of pattern trading. Triangles, double tops, wedges, head-and-shoulders and so an can be formed in the chart of any instruments and a break out from these patterns signal entry points for a bunch of technical traders. I would like to emphasize here that this logic is likely to make more sense for the shorter-term trades. Although, If your forex trading system is capable of being used in commodity or other instrument trading then you can make a good use of the very same strategy with a completely different instrument.

The idea behind the Stealth Forex Trading System is exactly what I have just mentioned. The system focuses on the different technical trade set-up and give a razor sharp entry point for the trade. Your chose graph may belong to the EURUSD, to USDJPY, to gold, silver, copper or oil the price of this instrument is likely to move in the direction what was triggered by a given technical sign.

This is what I like about technical analysis. It is almost completely independent of the instrument behind; a good forex trading system is all about trends, reversal patterns and break out’s. If you stick to this logic and spice it up with a bit of guidelines from money management strategies and add some mathematical calculations to it than you will surely increase your chances to make profit at the end of the day.

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Forex vs. Commodity Markets – Good Trading Systems Handle Both (1/3)

There is an ever growing need for a good forex trading system that is completely based on the weaponry and tools of the technical trend analysis. And if it is so, then what makes a difference for those who want to trade gold or want to trade the EUR/USD with this underlying forex trading system.

The cold fact is that even though the wheels of fundamental analysis roll in a completely different way in case of commodity trading an in case of the forex market but if you take a closer look at both of them from a technical point of view then you will clearly see that pretty much the same principles apply and predominate.

Moreover, what you see as a high potential entry sign on the chart of any currency pair may indicate you  the very same action on the graph of silver, oil, corn or copper. Try to imagine what the technical analysts may search for on a graph and tend to implement it into your very own forex trading system. If you can manege to soft tune your own forex strategy to the different markets than you can have a weapon to shoot at all the markets and if you do a good job than it will prove to be working for you in the forex market and in the commodity market as well. I can even tell you a more exciting fact though. It will also work for the stock market and the the market of national bonds also because it is exactly the same technical set-up’s that will drive the price movements.

Anyways, if you believe that technical analysis is the key to your financial goals and the most important motive for you to become a successful trader then go to google and dig for a appealing forex trading system which will meet your requirements and which can be tuned in a way that the same logic would apply to multiple instruments.

Keep in mind that the different markets are like different rooms in a big club where DJ’s play different music in the different halls. People are dancing in all of the rooms pretty much the same way (this is the technical analysis) but they are still a little bit distinctive from each other (that is your self-tuned strategy). You have to find a proper combination of the two but a good forex trading system is very likely to be capable of handling this matter.

Now all you have to do is to find the strategy that will serve this purpose but this will be the topic of my upcoming post soon. Until then, please take a minute or two and write a comment if you have experience with trading systems that you used for multiple instruments!

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Competition of Forex Trading Systems (and the Truth Behind Them) (3/4)

So the question any more is not if brokers make profit from forex trading competitions or not.

The correct question is as follows: What do they make their profit from and how do they turn the information piles into real money at the end of the contest?
Naturally, nothing is as simple as it seems to be for the first sight. And no one knows it better than us, who have likely tried out dozens of forex trading systems already. Anyways, that is quite obvious that after the trading rally gets over the sales representatives of the company start calling and emailing and contacting the competing traders in every single possible way. They must be doing it quickly because in case the service provided throughout the trading competition was of quality then traders may decide to switch broker and transfer their funds to the new firm that they have just had a good impression with. Most of the traders make their decisions about  choosing the broker based on emotional reasoning.
The sales team probably cannot succeed with every single trader who took part in the contest of the forex trading systems and the sales cannot manage to turn every single contestor into company clients. And let’s be honest here: It is a 100 percent sure that best offers will also be declined due to a great variety of reasons but brokers will naturally not accept refusal immediately. They will go after the clients and so the marketing campaign takes off with news letters, special offers, discounts, educational material and so on. They will leave need no stone unturned to pull in new clients.
Okay, so is customer acquisition the major drive for brokerage firms to hold forex trading competitions? And my answer is still NO although, this is, indeed, a great opportunity for the broker to increase the number of its clientele. Although, in this case the question arises: What else on Earth would motivate a brokerage firm to organize these competitions for forex trading systems? I will reveal the real facts in the closing part of my series of posts.

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Forex vs. Commodity Markets

How can any forex trading systems be effective with completely different instruments? The answer to this question is more simple than you would ever imagine.

We all learnt from the first part of this article that forex trading systems can be tuned in such a way that they will be capable of handling the expectations of the different types of instruments out there in the market. Although, this approach can only make sense to those traders who follow the principles of the technical trend analysis and may not make any sense for those traders who believe in the justification of the fundamental analysis. I consider myself a more-technical type of person and understand what this way of thinking suggests.

But how can any forex trading systems be effective with completely different instruments? The answer to this question is more simple than you would ever imagine. One common rule applies in the world of technical analysis which is the idea of the ‘self-fulfilling prophecy’, which is nothing else but pure psychology. That is right, a great deal of psychology lays behind the price movements so does behind commodity and forex trading strategies. The more traders await for a certain reaction from the markets to come then the more of them would like to be in that certain wave of price movement when it actually occurs. But while the masses of traders open their positions and get ready for the wave they will influence the prevailing price and shift it in towards the desired direction.

This latter idea derives from a basic concept of economics. If the majority of the traders assume that the price of any currency pair or stock or bond or commodity is lower than it should be then they see this case as a potential opportunity to make money. They believe that market will effectively price the underlying security so they start purchasing it as soon as they spot the price gap. This is one reason – but not the main reason – to have a forex trading system. Although, when the number of buyers increase compared to the number of sellers in the market – it happens when demand is greater the supply – then prices tend to rise to generate equilibrium between the two trading parties. It goes on until the buyers pull back and let the prices flow in the direction of weakest resistance. This example shows us that the market reacts to certain occurrences in pretty much the same way irrespectively what this instrument really is.

I will present you another example proving that good trading systems are completely interchangeable between a wide range of products in my next post.



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Forex Option Trading

When most people think of trading currency they think of trading forex spots or currency pairs traded directly on the market. Not many people trade forex options, but they can actually be a very good method of either hedging your investment or outright speculating in them. An options is what the name implies: An option to buy or sell something at an agreed price sometime in the future. Now, you may think that sounds a lot like ‘futures’? That’s true, but not quite. An option is only that, the OPTION, to buy or sell something, while a future is a contract to do so, you must either buy or sell with a future. So with that out of the way, let’s look at options a little more closely and how you can make money from forex option trading.

Options are usually most discussed when talking about stocks and bonds, mostly stocks. I am sure you have heard of CEO’s and executives being given stock options, but ordinary traders also use stock options either on behalf of their companies or for themselves. Currency options are many times used by companies who do business abroad to hedge, or insure, themselves against currency risk. By having forex options they can offset some of the loss that a currency rate swings would mean. Options are essentially meant for this purpose, as a type of insurance used to deal with swings in the financial markets. Every portfolio of some size has options in it. But how can you use forex options to speculate and should you?

It’s not hard to trade options at all. There’s two types of options in general: Call and Put options or Buy and Sell. Call options are options to buy and Put options are options to sell.

Besides that there’s two sides of the Options market, the writers of options and the buyers of options. Remember that I told you how options where just options? That’s true if you’re a buyer of options. If you’re a writer on the other hand, then you must either buy or sell something if the buyer of the option wants too. This means that writers of options are usually only banks and big corporations.

Back to forex options. Forex option trading means trading long term. You buy an option to either sell or buy a currency in the future. Just like with futures you make money if the currency pair is worth more than what you agreed to (Call option) or less than what you agreed too (Put option). Or you can make money by selling your option before it expires. Option pricing is another much more difficult topic that we won’t go into here though!

Option trading may be for you,if you don’t want to spend every waking hour on the computer and prefer to think and trade longterm or you just want to hedge some other investments. If you’re looking for a more active type of trading, forex spots are probably more for you.

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Trading on the News

Trading in foreign currencies is never an easy occupation.  The market is enormous, as is the stature and financial capacity of most major participants.  For a single retail trader to assimilate every bit of news and financial data and out-guess the “Big Boys” is often an effort in futility.  The exercise becomes more one of managing risks and searching for a strong trend to latch onto for an extended period of time.  Losses are inevitable, but if controlled, then one good trend can offset several losing trades and offer potential profits and the opportunity to utter that favored phrase, “The trend is my friend!”
One learns quickly that major news releases can be a “double-edged sword”.  If you are unaware of a pending major economic release, the subsequent volatility can wreck the most well-intentioned trading strategy.  Fundamental data releases from government agencies around the world influence stock, commodity, and currency markets daily.
However, the forex market tends to react more severely to these releases since the relative value, i.e., exchange rate, of a given currency pair is determined by the global consensus of traders’ evaluation of economic variables.  Typically, the forex market stalls before a major release, then an initial “head fake” ensues while analysts assimilate the data to form an opinion, and once an opinion is formed, the market moves quickly in one direction.  The resulting trend can last for hours, even days in some cases.
Employment data appears to be the largest market mover in this category.  The release of Non-Farm payroll data on the first Friday of every month by the U.S. Department of labor is a much-anticipated event.  The chart below is indicative of the unfolding events:

The market reaction of the “GBP/USD” currency pair is depicted for this previous Friday’s release, the first such release in 2011.  The data is generally released on the first Friday of every month at 8:30 EST, or 13:30 Greenwich Mean Time, GMT, as per the chart above.  As one follows the timeline from the left, the market anticipated good results in the data that would strengthen the Dollar, the “head fake” so to speak.  After recovering during the “assimilation period”, the market reacted in the opposite direction, a 120-pip move, as the employment data was not as strong as the market had believed that it would be.
“Trading on the news” is the moniker given to this short-term trading strategy.  It is often said that it is not for the faint of heart because market movements can be radical with many “head fakes” to deal with before the solid trend takes over.  The shear volume of trading orders also becomes problematic, often inundating the servers and switchboards of forex brokers, such that order execution becomes paramount and the responsibility for executing stop-loss orders is often exempted by your broker agreement.
For those traders that feel worthy of the task, it is highly recommended that you practice several times with your forex trading demo account before venturing into these volatile trading waters.  It is not necessary that you perfectly time the market or guess which direction will be the most likely to occur.  The objective is to grab onto the trend once it has formed which typically takes about forty-five minutes from the release point.
The British Pound pair is generally accredited with the most potential for movement.  In this case, the 120-pip move would have generated a 70 basis point return.  The comparable returns for the EUR, JPY or AUD were in the 55 to 60 basis point range.

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Currency trading strategy

In this article we look at the different types of currency trading strategies and systems the forex trader can choose from before commencing their FX trading journey.

The Best Currency Trading System

There are many many different currency trading systems out there for sale, some even claim to be the best currency trading strategy ever! Unfortunately, these systems sold online rarely (if ever) live up to this bold claim. And the reality is, if these forex strategies were really any good, it is unlikely they would be for sale. The owner of the system would be using it to make money currency trading, instead of spending his time and possibly money marketing the strategy.

Carry Trade Strategy

The carry trade is an extremely popular trade in the FX Market. It is made possible by the fact that different countries have a different benchmark interest rate. At the time of writing this article, Japan’s benchmark interest rate was just 0.5%, whilst the benchmark rate for New Zealand was 8.25%. Interest rates fluctuate based on economic conditions. It is USUALLY the case when one benchmark rate is on an upward trend and another country’s benchmark rate is on a downward trend, the currency on the upward trend will appreciate against the currency that is on the downward trend. This is not a guarantee, but it is a common occurrence. Each time you buy a currency pair that has a positive interest rate differential, you will receive a credit each day for the interest rate differential. However, the reverse is true if the pair you are trading has a negative interest rate differential. For example, a long NZD/JPY position would receive a credit each day (also known as the swap) whilst a short NZD/JPY position would have to pay the negative interest daily.

Trend Trading System

As the name suggests, trend trading systems attempt to capture trends. Some forex pairs trend very well indeed in the long term. On that really springs to mind is EUR/USD. It has been in a long upward trend for many years, with few significant retracement, making many record highs along the way. In the forex market the trend really is your friend. Never open a long term position against the long term trend.

Forex Scalping Strategy

A Forex scalping strategy aims to profit from very small price movements. Scalping positions are usually opened and closed within a short time frame. It’s important to choose a broker with as low a spread as possible for when scalping to minimize the number of spreads the trader has to pay.

Forex News Strategy

There are many news trading systems out there. Many people attempt to trade the initial news spike after a data release. Price can move one direction very quickly seconds after a new release, leaving a good opportunity to trade. The move is often bigger if there is a surprise in the numbers. I remember a shock interest rate hike by the bank of england in January 2007. The pair GBP/USD rose around 150 in less than a minute!
If you want to trade news spikes it is important to have a very fast news feed that can get the numbers to you as quickly as possible, before the market moves. An example of a budget news feed is Tradethenews. Bloomberg and Reuters both offer professional news feed, they are not cheap though.
It also important to have a broker that has very fast execution around the news releases. Many retail forex brokers do not like news traders, so it is important to find a broker that best suits your needs. Due to the high volatility around the news releases execution on a live account is often very different to that of a demo account.

Automatic Forex System Trading

The idea of an automatic trading system that makes you lots of money and requires minimal maintenance is appealing to many for obvious reasons. The most common form of automated forex trading is the use of the platform Metatrader4. This allows the trader to create a piece of software that will trade according to a specified set of rules. Unfortunately, most of these systems do not stand the test of time. Some may do well in the short term, but very few indeed earn money long term. There are many of these automated currency trading systems for sale, often with a big price tag. Generally it is best to stay clear of these. The same line of thinking as mentioned above applies, if the strategy was making money, why would they be selling it?

Conclusion

In conclusion, the best online currency trading system is the one that suits you best. Many new traders have a day job and are unable to spend several hours a day trading, so some strategies may be unsuitable. For example, if your FX trading strategy was to profit from carry trades in the long term. You could just open a position and leave it alone. However, if you wanted to scalp the forex market, this would probably require a much bigger time commitment. Of course, you can use many different strategies to try and spread your risk out as well.

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Scalping strategi

Forex scalping is a trading technique that involves opening an FX position and closing it within a short space of time with the intention of speculating that price will move slightly in favour of your position before closing it, for a small profit.
Typically, forex scalpers make a very large number of trades and it is not uncommon for a scalping trader to make well in excess of 100 trades in a week.
Most traders who attempt to scalp the forex market fail rather miserably. This is because for the inexperienced scalper the odds are set well against them. I will demonstrate why this is below:
Let’s say a scalper wants to earn 10 pips by speculating that the price of GBP/USD (Cable) will move from 1.9990 to 2.00. Typically, with most retail the brokers the spread for this pair is 3 or 4 pips. In this example we will use 4 pips. We will also use a 10 pip stop loss.
If the scalper is correct and price hits 2 before the stop loss, he will earn the 10 pips minus the spread of 4 pips, a net gain of 6 pips.
However, if the stop gets hit, the scalper loses 10 pips plus spread, which nets -14 pips.
So in this instance, the winning trade made 6 pips net profit and the losing trade made a 14 pip loss. OUCH!
With this example the trader would need to win 70% of his traders to just break even!
The spread you trade with can massively affect the outcome with FX Scalping. In this above example, if the spread was 2 pips instead of 4 pips, the trader would only need to win around 60% of their trades to break even. A big difference.

Forex Broker for Scalping

There are many FX brokers out there nowadays, but many of them are unsuitable for scalping. Some brokers do not like their clients to scalp the forex market, whilst others have too wide a spread for it to be profitable. One broker that does not seem to have any objections to scalping is Oanda and their spreads about the lowest around. Some ECN Brokers may be suited for currency scalping, for example mbtrading.com. ECN brokers often have lower spreads, sometimes much lower, but there is often a commission fee to pay for each trade.

Scalping Forex Strategy

There are many forex scalping techniques used when scalping the forex market. Some rely on indicators whilst others rely on support and resistance. One simple scalping strategy I have tried personally is marking major support and resistance points on my chart and putting a limit order at them and try to catch a few pips on the bounce. It’s important not to be greedy with this strategy and just get a quick scalp.

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Free Forex Strategies and Systems

In this section I have tried to put together a group of FX Trading Strategies for you to try. Most of these free forex trading systems can be used on any size of trading account including micro, mini and standard.

Proven Forex Trading Strategies

They have been tried either by myself or by my trading friends and they have shown to be winning forex strategies. However, as with any forex trading strategy, excellent risk management must be used at all times.

Choosing a Forex strategy

When choosing a currency trading strategy , it is important to select one that best suits your needs. It would be no use using a strategy that required you to watch the market during the whole of the London session if you had a day job. The strategies below are all easy forex strategies to follow. You can of course modify them if you feel you can improve on them.

Forex Scalping System

This is an easy little strategy to follow. It involves pinpointing major support and resistance point. You can use fibonacci retracements for these. Then when price hits a major support point, go long. Whenever it hits a major resistance point, go short. Tight stops must be used as well as small take profits. This allows the trader to capitalize on the bounce. There is usually at least a small bounce at major support and resistance points. It would be a good a idea to use a broker with a small spread for this strategy so the spreads don’t eat into your profits too much. This is a good forex strategy with a lot of potential, but be sure to try it on a demo account first.

Forex Hedging Strategy

A popular FX hedging strategy is to buy GBP/JPY and to simultaneously sell CHF/JPY. The goal is to profit from the interest rate differentials as well as the price movements. Currently a long GBP/JPY earns considerable swap interest due to the large difference between rates. You have to pay interest on the short CHF/JPY, but it’s considerably less than on the long GBP/JPY position. Typically a good ratio to use is 1.8 lots for the short CHF/JPY to every 1 lot of GBP/JPY. However, different amounts can be used.
It’s a good idea to leave enough margin in your account to weather at least a 1,000 pip swing against you.
This strategy does involve considerable risk because the currency pair CHF/JPY is not guaranteed to go in the opposite direction to GBP/JPY. However, it could be a lower risk method of taking part in the popular carry trade. This is potentially a very effective forex trading strategy.

Forex Arbitrage System

A clear arbitrage exists between mainstream currency trading brokers and spread betting forex brokers. The arbitrage situation exists because with spread betting you have the option to have your pips priced in different currencies. For example you could have a long gbp/usd position so that the pips are priced at £5 per point. To hedge we could use a short GBP/USD position with a normal forex broker, using 1 standard lot.


Source: forextradingguide.com

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Forex Trading Charts

Forex trading charts are an invaluable tool used by forex traders. The first thing you are going to notice when you fire up your trading platform will be those flashing numbers and graphs. These graphs are the bread and butter of forex trading. They will show you everything you need to know and with a little practice, you will be able to read and trade on them. In the beginning you will probably feel a bit overwhelmed by all the options and settings, but give it a few weeks and you will be reading ‘candlesticks’ and trend lines, like you have done nothing else your entire life. This article will look at some of the most commonly used signals on forex trading charts.

• Simple Moving Average

The simple moving average is often the first signal that forex traders learn. It’s a line running trough your graph showing you the running average for each time period. The moving average shows you the average price over a period of time. It’s different from a simple average in that the simple average will only return one number out of for example a set of 30, but the moving average will show you 30 averages from a set of 30 prices. This shows you the general trend over time and can be used to determine if you should buy or sell. If the price of a currency is above the moving average, then it may be a good time to sell and on the other hand, if the price is below the moving average, then you should consider buying.

• Bollinger Bands

Next signal on our list is the Bollinger Bands. This technical indicator shows you two lines that show you both the liquidity and volatility in the market. They are similar to support and resistance level lines. If the two lines are set far apart, it implies that there is a lot of action in the market, buying and selling. If they are close, then it means that the market is quite. After a quiet period, it often happens that the market moves in one direction forcefully. You can therefore use the Bollinger Bands in combination with other signals to look for these opportunities.

• Stochastics

Stochastics show if the market is overpriced or underpriced by using a statistical measure. It involves using the simple or exponential moving average to test for these assumptions. Stochastics are good buy/sell signals.

• Parabolic Stop And Reversal

Also known as SAR, this is an indicator that can be used to determine if the trend has topped or bottomed out. This indicator can be used with other indicators to make sure you enter the market at the bottom and sell on the top or the other way around if you have a short position.
These are only some of many indicators, but they will go along way to helping you max out your profits and they are easy to learn and simple to spot on the charts.


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