All systems which are used in the trade by speculative traders on Forex, it is possible to divide conditionally on two categories. For the first category the trend direction in attention isn’t accepted, for all other systems determination of a direction of a trend is a part of it and such systems are in the majority.
Methods and indicators for trend determination exist in a great quantity if not to tell that the majority of all created indicators are able to do it. A trend is the expressed consecutive increase or lowering of quotations of the currency pair, displayed graphical. For what period of time it is lowering or increases? Two next tics, two opening prices of the next hour, day or monthly bars are compared? Or it is necessary to take some opening prices (closings) the last N bars in any specified time frame, to connect them, to smooth the received curve (a sliding average?) And to carry out its analysis. The exact and unique method of correct determination of a trend isn’t present, correct method will be always what it brings to you expectational result.
We take the hour schedule and we will look at it, visually, without indicators. We see a trend downwards, now we are switched to the day schedule and we see a trend upwards. What to do, where to trade?
Moreover, on any schedule of currency pair practically always it is possible to allocate two trends, upwards and downwards. The trend can be a necessary part of your trading system, but never sufficient. In the considered situation one trader will open a position on the sale, the second on purchasing simultaneously with the first and as a result both will close the positions with profit. Is it possible? Certainly! Now some beginners clutch at the head – their foundations fall, others with impatience read further – it seems, now there will be Grail. All is simple – both traders will close the positions at various times. When the first will close the position with profit, the position of the second will be unprofitable, but the loss won’t be fixed – its size within admissible for trading system. The time will pass, the position leaves in plus (the unrecorded loss hasn’t exceeded limits, put stops, the word of honor) and will be closed with profit. The first trader can finish at this time, for example, with profit two trades or more, having opened the second position after the first.
Each trader trades on different time frames, someone on 4-sentries schedules and its position there are in the market on the average some days, someone on day schedules in due course lives of a position some weeks or months. There are also scalpers, but the author is not the admirer of such strategy. It was already mentioned that it is important to close a position in time. Perhaps, it is the most important part of system – it is possible to open though «on a coin», and the main thing is in time to close positions.
Accordingly, if it is important to you to know a current trend that trend which you have specified, should be agreed that part of your trading system which is responsible for position closing conditions. Such conditions can be, for example, achievement by certain levels for a certain time interval or realization of any pattern, change of a trend or the fixed profit/loss in points. On an hour schedule downwards, and on day upwards, but it is occasion not to sell a trend, if you plan to close a position till the evening.
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1. We accumulate the information on trade – we buy books, we visit seminars, we read articles.
2. We start to trade, using “new” knowledge.
3. We consistently lose money and we start to understand that to us, probably, it is necessary more knowledge and the information.
4. We accumulate more information.
5. We are switched to other trade instruments.
6. We come back to the market and we trade with use of our “renewed” knowledge
7. The market again “beats” us and we start to lose a part of the confidence. The fear starts to come.
8. We start to listen to analysts and other traders.
9. We come back to the market and we continue to lose money.
10. We again change trade instruments.
11. We search for more information on trade.
12. We come back to the market and we continue to lose money.
13. We become “self-confident” and the market “punishes” us.
14. We start to understand that the trading success demands from us more time and more knowledge, than we expected.
Many traders stop at this stage
15. We become more serious and we start to concentrate on studying of “real” methodology.
16. We trade on our methodology with certain success, but we understand that something doesn’t suffice.
17. We start to understand that it is necessary to have rules of application of our methodology.
18. We temporarily cease to trade, to develop and research our rules of trade.
19. We start to trade again, this time with application of rules and we achieve certain success, but frequently all of us still fluctuate, when there comes time to perform the transaction.
20. We add, we clean and we correct rules as we see necessity to be more skilled concerning rules.
21. We come back to the market and we continue to lose.
22. We start to bear responsibility for results of our trade as we understand that our success depends on ourselves, instead of trading methodology.
23. We continue to trade and become more skilled concerning the methodology and the rules.
24. When we trade, all of us are still inclined to break the rules, and our results are astable.
25. We know that we are close to our purpose.
26. We come back and we research our rules.
27. We acquire confidence of our rules and we come back to the market to trade.
28. Our results of trade are corrected, but all of us still fluctuate in accomplishment of our rules.
29. Now we see importance of following to our rules as we see results of our trade when we don’t follow them.
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1. Expect and accept loss easily. Those who always reflects on losses, drops the following possibility which, more, than possibly will be profitable.
2. Will halve the profits, and never risk again in the market more than 50 % from them.
3. The key to successful trade consists in knowledge of and the limit of pressure.
4. The difference between winners and lost consists not so much in natural capabilities, but in the discipline shown in avoidance of errors.
5. In trade as well as in fencing exist fast and dead.
6. The word can be silver, but silence – gold. Successful traders don’t speak about the success.
7. Dream about big, dream of the high. Very few people establish for themselves too high purposes. The person aspires to what he thinks constantly.
8. Accept failure as a step to a victory.
9. You have accepted loss? Forget about it quickly. You took profit? Forget about it even faster! Don’t allow the ego and greed to eclipse clear reflection and persistent work.
10. It is impossible to do anything concerning the yesterday’s. When one door is closed, other door opens. More considerable possibility always is behind an open door.
11. The most important task for the trader consists in subordinating the desire to desire of the market. The market is always right as it reflects all forces which it concern. While the trader recognizes it, he in safety. When he ignores it, he is doomed to losses.
12. It is much easier to enter into the market, than to leave it.
13. If the market doesn’t do your way you should find the other way.
14. Be careful of the big positions which can manage your emotions. Don’t be excessively aggressive with the market. Manage it softly, allowing your assets to grow steadily, instead of jumps.
15. Never add to a losing position.
16. Be careful of attempts to choose top or a basis.
17. You should trust in yourselves and the judgement if you expect to earn on life in this game.
18. In the narrow market there is no point to wait that following big movement is going to be upwards or downwards.
19. Loss never disturbs me after I accept it. I forget about it at once. But to be wrong and not to take loss is that harms to a pocket and a self-appraisal.
20. Never offer councils and never brag of the prize.
21. From all gross blunders, there is a bit big, than a position closing which shows profit and deduction of that which shows losses.
22. The finding out of the market is too a position.
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The main enemy is the Fear.
Universal fears are:
* Fear to be missed
* Fear of loss of the control.
If we reflect for an instant, we will see how the fear to be missing looks. Small children completely depend on their parents. Very quickly we understand that if they leave us, we will be incapable to take care of ourselves. The majority of us are not in a condition to resist to this fear when we get mature. As a result we automatically deal with it, trying to manage our environment – people, conditions and events which surround us.
This tendency can manage or not to be acceptable in life in other areas but as trade strategy in the markets it leads to ruin. The majority of us are incapable to influence the market even during the shortest moment of time, any more without speaking about the control over it.
According to Mark Douglass it is available four fears which are only a version of two universal fears:
1. Fear of losses
2. Fear to be wrong
3. Fear to drop the transaction
4. Fear not to take away profit.
They can be more familiar to the trader.
For an illustration of effect of fear we will give an example from life: One unfamiliar trader futures trading through one of the dealing centers, thinking why he is such disturbed, has told that held a short position on a strong bull market. While his eyes looked afar he spoke: I don’t know, why I only didn’t reduce a position earlier; why I haven’t made? It is effect of fear which forces out consciousness; it leads to short-sightedness; it will paralyze us and leads to failure to act.
Mirror display of fear is euphoria – feeling that we can’t make any error. Also as well as the fear, euphoria will lead finally to trading crash. As trade is game by probabilities, we will test times when we can’t commit any error. But these times will end sooner or later. The trader has got in euphoria trance, without understanding it and accepting too big risk which finally will lead to strong losses. If it is successful, losses won’t be catastrophic.
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In fact, the modern foreign exchange market that is otherwise called as foreign currency market or also forex is definitely a worldwide financial market to trade various foreign currencies. Well, it is also a decentralized kind of market which actually functions all over the globe. Of course, except during the weekends the trade certainly keeps on moving with so many various buyers and sellers globally. Besides, this kind of market surely assists in understanding all about the actual values of every foreign currency.
But now let’s talk about the main purpose of the modern forex market. For sure, the main vital purpose of foreign currency market is to assist during the international trade. Moreover, it also assists the forex traders to convert from one foreign currency to another during their business. Just consider one example where dealing is between the British pound and also US dollar. Thus the American people are able to import various British goods and stuff and pay these Pounds rather than paying in the US dollars.
Without any doubt, the next main reason is that it also assists in supporting speculation. And so the forex investors are able to borrow low yielding foreign currency and after that invest in high yielding one through which many different competitions can be reduced.
In fact, during some forex transaction, one party buys some goods of one foreign currency and then pays them in another foreign currency. Thus after discovery of the forex market came the modern foreign currency market. And during this period of time, many various countries really started switching to floating exchange rates.
And now let’s talk about uniqueness of foreign currency trading. First of all, that is basically due to the geographical dispersion. Besides, it concerns the power which it has for enhancing the profit margins. Moreover, different factors which affect these exchange rates globally, it also has quite low margins of profit when compared to other financial markets in terms of fixed income. In addition, the forex market actually runs round the clock except during the weekends and the trading volume definitely increases and due to that liquidity steeps quite high.
In fact, from that uniqueness of foreign currency market, it has been considered as the perfect competition. As an example on April 2010 the usual each day turnover is almost four trillion of dollars. For sure, it certainly shows an exact growth of nearly twenty per cent of the three trillion of dollars which is a daily turnover just like on April 2007. And with those improvements, some of the existing firms have given their medium turnover as four trillions of dollars.
And finally, one of the most essential markets is called as the spot market.
It is important to gather as much info about currency exchange market as possible. Because this info will help you not to lose much money on Forex trading or Forex investment.
Surely not a single piece of knowledge can be a 100% guarantee against losses, especially on Forex, but sometimes just one Forex books can save you much money.
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