Advanced Forex Trading Strategies

Whether you are a beginner or a seasoned professional, trading currencies in the foreign exchange market can be difficult. Numbers, terms, concepts, trading options, and value movements are some of the factors that you will have to deal with every day, if you plan on succeeding in the foreign exchange market. 

If you are experienced in forex trading, chances are, you have a good idea of what foreign exchange is all about, how the market works, as well as how to use certain trade strategies to your advantage. But even though you are experienced, there's no harm in wanting to learn more about how to make the most of your forex investments. This article will offer some tips for professional foreign exchange traders. 

Issues faced by professional traders 

Before we get into the tips, it's important to address the issues that many professional traders run into. Despite being experienced and educated in forex trading, professional investors can still encounter problems that make trading a bit difficult. Some of these problems arise because of the very nature of forex trading, while other issues may come about because of misunderstandings or mishaps. 

One of the difficulties that beginners and pros alike have to face is the unpredictability of the forex market. Even if you have been engaged in forex trading for more than 20 years, it is still hard to constantly make accurate predictions of price changes. The truth is, foreign exchange trading can be just as unpredictable as the stock market. Constant fluctuations in price over 24-hour trading days can make even the most stable currency fluctuate in small amounts. In forex trading, small fluctuations lead to big gains or losses. 

Another issue that professionals constantly have to deal with is deciding whether or not to switch to a different online trading systems Even seasoned professionals can make the mistake of switching to a new system too early because of low points. However, forex investors should realize that all trading systems encounter low points every now and then. Basically, it all boils down on how you intend to to manage those low points and "roll with the punches," so to speak. Instead of completely pulling out from a system that you are used to, you may want to consider sticking it out--waiting for your system to stabilize instead of switching to a completely new system that you are unfamiliar with. 

Most professional forex traders make use of automated trading software to help them manage their investments easily and make certain transactions depending on market variables. For example, you could pre-program the conditions for the program to automatically buy, sell, or trade currencies. The only problem is, some professionals get so caught up using these automated trading software that they sometimes forget to manage their investments themselves. This is a dire mistake. If left unmanaged and unmonitored, these automated programs can easily make the wrong transactions. The accuracy and effectiveness of these programs still depend on how accurate your pre-programming is. If you put in the wrong values or overlook certain aspects, you can easily lose your investments. 

Tips for professionals 

* The first and most important tip for professional forex traders is to always maintain a high level of discipline when it comes to forex trading. Disciplined trading does not necessarily mean that you have to sit in front of your computer all day to monitor each and every price change. Having discipline when forex trading means that you should try to keep your emotions out of the equation. The moment you get caught up in your emotions, you are more likely to make irrational trading decisions that can lead to more losses. Instead, keep your cool, devise a plan to start earning again, and follow through with your plan. 

* Second, don't make the mistake of relying too heavily on automated software. There is a time, place, and situation for using automated software, but if you rely too heavily on these programs, you can lose your money without warning. Make the extra effort to monitor and analyze the market yourself, then come up with your own money-making strategies that you can put into action instead of relying on an automated program. 

* In line with the second tip, it's also important to devote time to making your investments work. The foreign exchange market is constantly changing, specially now that the Internet has made communication and data management so easy. With such a dynamic market, it would be useless to stick to the same strategies for years and years. Part of your dedication to making your investments succeed is to make appropriate changes to your strategies so you can keep up with the times. 

* No matter how much of an expert you are, you can always benefit from what other professionals have to say. Also listen to what other experts have to say about forex market conditions, instead of relying solely on your own analysis. To make things work, though, you will need to have good judgment on how to act upon the information you received from others. 

Tools that can help professionals 

As mentioned earlier in this article, there are numerous types of tools (such as automated trading software) that beginners and professionals alike can use to help them succeed in forex trading. Part of being an experienced professional is to know what the best tools for the job are and how to use them effectively. Here are a few forex trading tools that you can use to get the upper hand and make big returns on your foreign exchange trades: 

- forex trading platforms
- charts and analysis reports
- forex research
- books on forex trading and investment
- advisory services

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When It's Time to Move a Stop Loss to Break Even

One of the most common and expensive mistakes made by traders is moving the stop loss on a trade to break even too quickly. It is psychologically attractive to move a stop loss to break even in order to enjoy the feeling of removing risk, but it is usually not a smart thing to do as it tends to result in being kicked out of potentially profitable trade too early. Stop losses should only be moved either after a defined period of time has elapsed, or after the trade has moved in the trader’s favor by a relatively large amount, compared to the risk of the trade. Other methods of judgement tend to produce poor results.

The question of whether you should move a stop, and if so, when you should move it, depends also upon your style of trading, i.e. your tolerance for losses and your profit targets.

Should You Move a Stop Loss to Break Even at All?

There is a good argument for never moving a stop loss to break even. After all, if you test the profitability of a good trading strategy with clearly defined rules, moving stops will rarely make a great deal of difference to the overall profitability. If you treat the question of when to move a stop as art rather than science, you need to be a very good trader to get good results with it. Most new traders are probably better off avoiding moving stops at all, except for example where a trade is, say, already three-quarters of the way to its profit target.

If you have entered a trade and it has moved in your favor, all is going well. Remember that when you move your stop loss to break even, you are potentially limiting the upside as well as limiting risk. In fact, moving a stop is, in a very real sense, statistically the same as taking a profit. Why take profit early if you have faith in your trade entry? All you are doing is inviting the regular and normal volatility of the market to remove you from your position, and if you don’t have a position, how are you going to make any money?

The Statistical Reality of Trade Entries

If you look at all your trade entries, or a lot of entries generated by a strategy, you will find that in most cases, the price comes back to the entry level, even after a relatively considerable period of time has elapsed. Even when a technical development has occurred that indicates that the price is not going to come back there, for example carving out a higher swing low or lower swing high, it is still likely to return and hit your newly breaking-even stop loss.

To give an example, I examined a trend trading strategy that has recently produced excellent results. The stop loss is one day’s average range, so it is adjusted for volatility. I looked at all the really good entries: the ones that produced winning reward to risk ratios of at least 5 to 1. The result was that it was only safe in about half of these cases to move the stop loss to break even once 48 hours had elapsed. Of course, this was a longer-term trading strategy. However it goes to show you that while it may be true that many of the very best trades go into profit right away, this is not usually statistically common enough to build a winning strategy upon.

Common Approaches to Adjusting Stop Losses

Defined Time Period

One approach that can work is to wait for a defined length of time, one that should have given your trade enough time realistically to “breathe”. Once this time has elapsed, if your trade is showing a loss, exit immediately; if a profit, move the stop loss to break even. If you apply this method consistently, you could save in early exits from bad trades what you miss in any early exits from trades that turn out to be good trades after all.

Floating Profit Equals Certain Amount

You could apply the maxim “don’t let a winner turn into a loser” by moving the stop to break even once it has performed well enough to be out of the “orbit” of the entry level. You will probably be best served by waiting for the trade to be in profit by at least 3 times the amount of the stop loss before doing this.

Trailing Stop Loss

This can work, but should also not be applied until the trade is in profit by at least 3 times the stop loss, and the size of the trail should be based upon volatility.

Technical Stop Loss Adjustment

A very common approach, which usually involves waiting for any of the following to occur:

1. A failed retest of the entry point
2. A significant higher high or lower low that “confirms” the entry
3. A successful breakout in the direction of the trade
4. A failed breakout against the direction of the trade

These can work sometimes, but will not usually work often enough, especially in intraday trading.

Fixed Pip Amount of Profit

Here the stop loss is moved to break even after some fixed amount of floating profit has been achieved. This is a bad idea except where the price is much closer to the take profit point than the entry point.

Conclusion

Moving a stop loss to break even is the same as taking profit. If it is too early to take profit, there is no point in moving a stop loss to break even. Except in cases of very skilled traders, it is hard to be profitable if you are aiming for an average reward to risk ratio less than 3 to 1, so it is probably a bad idea to be moving stop losses to break even any sooner than that.

Every currency pair or cross has an average daily range of volatility. If your stop loss level is within half of that amount, it will probably be hit within the next day or two. Consider whether that gives it enough time to reach the kind of profit target you are looking for.

Do not be in a hurry to adjust a stop loss.

Source: http://www.dailyforex.com/

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15 Questions One Should Ask his or her Broker

There are many Forex Brokers, but not all were created equal. When it comes to your money, you want to be certain that your Broker meets your expectations. It is your right to ask as many questions as you need to feel comfortable about your venture and if you don’t get the answers your want, you should consider finding another Broker.

Why Size Does Matter

Size matters. Because the Forex market is an over-the-counter market with no centralized exchange, not everyone receives access to the same prices or quality of execution. Institutions with the largest trade volume and the most solid financials have access to better prices and execution. The bigger the broker, the better they are able to pass on the benefits of size, better prices, and better execution to you.

Who Executes Your Orders?

Not all Forex Brokers quote rates the same way. Below are two possible options:

1. Dealing Desk means that your Forex Broker creates the pricing and executes your orders. The spread is usually fixed, which means that traditionally, the spreads are higher than average variable spreads. Check for restrictions on placing orders during news or economic events; for many traders, this is a key time to trade.
2. No Dealing Desk usually means that multiple banks stream competing prices through your Forex Broker, so your orders are executed by the banks themselves. This means that there are usually no restrictions on trading news or economic events, but you should check with your broker.

Spreads
Fractional Pip Pricing

Most major currency pairs are quoted to four decimal places, so a pip would typically equal .0001 or one basis point. Forex Brokers generally round the price up or down to the nearest pip; but some now offer Fractional Pip-Pricing. It ads an additional decimal place, so spreads are usually tighter and more accurate.

Scalping the Market

Many traders favor short-term scalping strategies, which involves placing orders inside the spread. For scalping to be profitable for the client, the market maker must lose, so some Forex Brokers disallow the strategy. This strategy involves a high level of risk.

Rollover

Rollover is interest earned or paid on Forex positions held overnight. It varies depending on the difference in interest rates between a currency pair and fluctuates day to day with the movement of prices. A Negative Roll is when you sell a currency that pays higher interest rate, so you pay interest. A Positive Roll is when you buy a currency that pays higher interest rate, so you can earn interest. Negative Rolls are routine, but not all Forex Brokers offer positive rolls.

The "Carry Trade" is a popular Forex strategy which benefits from Positive Rolls and the high leverage available in the Forex market. For example, if you buy the USD/JPY, you can earn a positive roll. You are essentially borrowing the Japanese yen at a low interest rate cost to buy the US dollar with a high interest rate earning. Remember that leverage can dramatically amplify your losses, so beware of this technique, as it carries a high level of risk.

Hedging

Hedging lets you simultaneously hold BUY and SELL positions in the same currency pair. The most effective way to trade a market if you are uncertain about its direction is to find concrete support and resistance levels. This allows you to pinpoint levels where significant price action will take place.

Hedged positions do not necessarily limit risk as traders can find themselves losing on both sides of the trade. While this strategy tends to work temporarily in range markets, it does not work well in trending markets. Placing stop-loss orders on your positions to mitigate your risk is strongly recommended.

The National Futures Association, a self-regulatory organization in the US, adopted a new Compliance Rule 2-43 in 2009 that prohibits customers of Forex Dealer Members to open a "hedged" position in the same account. This rule may not apply to Forex Dealers outside of the US.

Customer Support

Forex trading works 24 hours a day. Does your Forex Broker? When you ask them questions, do they answer them clearly and honestly or do they give you the run-around? If your Forex Broker can’t answer the 15 questions below, you may want to look for one who can.

15 Questions You Should Ask Your Forex Broker

The following 15 questions are based on the above information and relate to basic information that your Forex Broker should answer without hesitation.

1. How long have you been a Forex Broker?
2. In what financial condition is your company? Will you show me your balance sheet?
3. Do you have good relationships with reputable banks?
4. Who is quoting the rates, my broker, a bank, or multiple banks?
5. Are the spreads fixed of variable?
6. How tight are the spreads?
7. Do you offer Fractional Pip Pricing?
8. Are there any trading restrictions?
9. Can I place orders inside the Spread?
10. Can I earn interest on positive rolls?
11. Can I earn positive rolls at all margin levels?
12. Are rollover rates displayed prominently? Where?
13. Does the trading platform allow me to hedge?
14. Can I lose more money than I put into my account?
15. What is the quality and availability of customer service?

Be aware that trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Source: http://www.xe.com/

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Is Trading Going to Spoil Your Vacation?

Forex trading is available 24 hours a day, 5 days a week. In order to trade, you just need a computer connected to the internet, and sometimes a mobile phone is more than enough. This flexibility enables traders to trade whenever and wherever they want. However, this flexibility can also take its toll on your summer vacation.

If you take into account that you’ll trade during your vacation, this isn’t exactly a vacation. But as you are fully aware of it, perhaps you can take more vacations – making money and enjoying the sun at the same time. But for most people, this flexibility just denies them of clearing their heads.

A vacation is necessary for refreshing your body and your brain from the intensity of trading. When you return from the vacation, the recharged batteries will help you as a trader.

Checking out the markets

Some traders just use their mobile phones to check out their positions but promise to themselves and to their families that they will not trade, just feed their curiosity.

But if you are already connected and see what your open positions are doing, the curiosity may change into an urge to act. With limited tools and limited time available on your vacation, you might reach the wrong decisions and lose money.

And if you do take your time to analyze and make a sound decision, you’re not really on vacation: you are not enjoying yourself and you are not allowing your mental batteries to recharge.

Leaving Open Positions

So, you decided to go on vacation and disconnect from everything: no charts, no positions, no market alerts and no nothing. However, you had an open position or two and you still want to keep them open while you’re away.

This may still hurt your vacation, as you’ll be worried about what’s going on. It will either sit on your mind and trouble you, or you’ll find yourself connected once again. In both cases, you’re denying yourself a full vacation.

As aforementioned, if you take into account that you’ll be fully connected while travelling, it can allow you to take many such “half vacations”. However, if you want a true vacation, close all positions and disconnect from the markets.

Opportunities will always come and go.

Source: http://www.forexcrunch.com/

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Bitcoin Wallets: How to Protect Your Digital Currency

Money has changed forms over the years, from gold coins, to paper bills, to proof of credit. While these forms of money are physically very different, they are all still backed by governments and as such constitute the fiat currencies of the official monetary system. In 2009, Bitcoin introduced the world to a completely different kind of currency—one not backed by any government or bank but created through computer code. This cryptocurrency or virtual currency has gained in value and users. According to blockchain.info, as of April 23, 2015, there were approximately 14 million bitcoins in circulation (an increase of about 1.5 million bitcoin from last year) with a market capitalization of $3.3 billion U.S. dollars. Over 100,000 transactions a day occur in bitcoin. But as bitcoin does not exist in any physical form and is not stored or regulated by any government body, how does one keep bitcoins safe and secure?

Just the way we keep cash or cards in a physical wallet, bitcoins are also stored in a wallet—a digital wallet. The digital wallet can be hardware-based or web-based (in the form of online wallets). The wallet can also reside on a mobile device, on a computer desktop, or kept safe by printing the private keys and addresses on paper, known as paper wallet. But how safe are any of these digital wallets? The answer to this depends on how the user manages the wallet. Every wallet contains a set of private keys without which the bitcoin owner cannot access the currency. The biggest danger in Bitcoin security is the individual user perhaps losing the private key or having the private key stolen. Without the private key, the user will never see her bitcoins again. Besides losing the private key, a user can also lose her bitcoin by computer malfunctions (crashing a hard drive), by hacking, or by physically losing a computer where the digital wallet resides. 

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1. Offline Mode

The offline mode of securing bitcoins is called cold storage. Cold storage wallets are not connected to the Internet and are thus less susceptible to hacking. Since accessing a cold storage wallet can be inconvenient, it’s best to split the bitcoins you own. Keep a small amount of bitcoins in an online digital wallet for daily trading needs and keep the rest in cold storage. Cold storage takes the private keys in an offline mode, thus decreasing the chances of theft. The practice of using cold storage is not only popular with individuals but even with cryptocurrency exchanges that deal with huge sums and are often under constant threat by hackers. The popular cold storage methods are paper wallet, sound wallets, storage devices (like a USB drive), and hardware wallets.

2. Backup

Backup your entire bitcoin wallet early and often. In case of a computer failure, a history of regular backups may be the only way to recover the currency in the digital wallet. Make sure to backup all the wallet.dat files and then store the backup at multiple secure locations (like on a USB, on the hard drive, and on CDs). Not only this, set a strong password on the backup.

3. Software

Keep your software up to date. A wallet running on non-updated bitcoin software can be a soft target for hackers. The latest version of wallet software will have a better security system in place thereby increasing the safety of your bitcoins. If your software is updated with the latest security fixes and protocol, you may evade a big crisis because of the enhanced security of the wallet. Consistently update your mobile device or computer operating systems and software to make your bitcoins safer.

4. Encryption

Encryption adds a layer of security to a particular folder, file, or message as it can only be unlocked by someone who knows the right key to it. Thus encryption simply means using a password for being able to access the Bitcoin wallet. In cases where a desktop, mobile, or hardware wallet is used, encryption is even more important to protect from online rogues. Not only should the password be strong with the use of capital letters, numbers, and special characters, but it should either be memorized or kept at a very safe spot since the password recovery mechanism is very weak in the case of Bitcoin.

5. Multi-Signature

The concept of a multi-signature is gaining popularity; it involves an approval from a number of people (say 3 to 5) for a transaction to take place. Thus this limits the threat of theft as a single controller or server cannot carry out the transactions (i.e., sending bitcoins to an address or withdrawing bitcoins). The people who can transact are decided in the beginning and when one of them wants to spend or send bitcoins, they require others in the group to approve the transaction.

The Bottom Line

Since its introduction 6 years ago, there have been many incidents of hacking, theft, and fraud involving bitcoin. The increasing number of bitcoin thefts also speaks about its growing value. For Bitcoin to grow in legitimacy, safe and reliable storage is very important. Taking a few simple security and backup precautions can greatly increase bitcoin security.

Source: http://www.investopedia.com

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